Question
Hi, I am doing a preminary analytical procedures for Apollo Shoes.
I have to find a unusual percentage and explain two possible hypotheses for why the change occurred.
I found one that increased prepaid insurace( 361%) ID:14100, but decreased in insurance expense(-96%)ID:68000.
I know this is strange because when prepaid insurance goes up, insurance expense should go up, but I dont' know
how to explain. Would you please help me? Thank you.
Prepared by Apollo Shoes, Inc Reviewed by Trial Balance Audited Unaudited 2013 2014 Raw Change Percent Change Account ID Account Description (Audited) (Unaudited)
(CY-PY) (Raw Change/PY) 10100 Cash on Hand $1,987.28 $2,275.23 $287.95 14% 10200 Regular Checking Account $198,116.52 $557,125.92 $359,009.40 181% 10300 Payroll Checking Account $0.00 $0.00 $0.00 10400 Savings Account $3,044,958.13 $3,645,599.15 $600,641.02 20% 11000 Accounts Receivable $16,410,902.71 $51,515,259.98 $35,104,357.27 214% 11400 Other Receivables $0.00 $1,250,000.00 $1,250,000.00 100% 11500 Allowance for Doubtful Accounts ($1,262,819.88) ($1,239,009.75) $23,810.13 -2% 12000 Inventory - Spotlight $18,825,205.24 $67,724,527.50 $48,899,322.26 260% 12300 Reserve for Inventory Obsolescence ($3,012,000.00) ($846,000.00) $2,166,000.00 -72%
14100 Prepaid Insurance $743,314.38 $3,424,213.78 $2,680,899.40
361% 14200 Prepaid Rent $200,000.00 $0.00 ($200,000.00) -100% 14300 Office Supplies $7,406.82 $8,540.00 $1,133.18 15% 14400 Notes Receivable-Current $0.00 $0.00 $0.00 14700 Other Current Assets $0.00 $0.00 $0.00 15000 Land $117,000.00 $117,000.00 $0.00 0% 15100 Buildings and Land Improvements $623,905.92 $674,313.92 $50,408.00 8% 15200 Machinery, Equipment, Office Furniture $433,217.10 $2,929,097.13 $2,495,880.03 576% 17000 Accum. Depreciation ($164,000.00) ($610,000.00) ($446,000.00) 272% 19000 Investments $572,691.08 $1,998,780.39 $1,426,089.31 249% 19900 Other Noncurrent Assets $53,840.59 $53,840.59 $0.00 0% 20000 Accounts Payable ($4,633,118.09) ($1,922,095.91) $2,711,022.18 -59% 23100 Sales Tax Payable $0.00 $0.00 $0.00 23200 Wages Payable ($29,470.32) $0.00 $29,470.32 -100% 23300 FICA Employee Withholding ($1,318.69) ($8,439.65) ($7,120.96) 540% 23350 Medicare Withholding ($583.99) ($11,414.99) ($10,831.00) 1855% 23400 Federal Payroll Taxes Payable ($6,033.01) ($118,086.12) ($112,053.11) 1857% 23500 FUTA Tax Payable $0.00 $0.00 $0.00 23600 State Payroll Taxes Payable ($2,815.47) ($55,106.86) ($52,291.39) 1857% 23700 SUTA Tax Payable $0.00 $0.00 $0.00 23800 FICA Employer Withholding ($1,318.69) ($8,439.65) ($7,120.96) 540% 23900 Medicare Employer Withholding ($583.99) ($11,414.99) ($10,831.00) 1855% 24100 Line of Credit ($10,000,000.00) ($44,403,000.00) ($34,403,000.00) 344% 24200 Current Portion Long-Term Debt $0.00 $0.00 $0.00 24700 Other Current Liabilities $0.00 $0.00 $0.00 27000 Notes Payable-Noncurrent $0.00 ($12,000,000.00) ($12,000,000.00) 39003 Common Stock ($8,105,000.00) ($8,105,000.00) $0.00 0% 39004 Paid-in Capital ($7,423,000.00) ($7,423,000.00) $0.00 0% 39005 Retained Earnings ($2,219,120.65) ($6,590,483.64) ($4,371,362.99) 197% 40000 Sales ($246,172,918.44) ############ $3,459,465.56 -1% 41000 Sales Returns $4,497,583.20 $11,100,220.89 $6,602,637.69 147% 42000 Warranty Expense $1,100,281.48 $1,158,128.47 $57,846.99 5% 45000 Income from Investments $0.00 ($1,426,089.31) ($1,426,089.31) 46000 Interest Income ($204,302.81) ($131,881.46) $72,421.35 -35% 47000 Miscellaneous Income $0.00 ($2,166,000.00) ($2,166,000.00) 50010 Cost of Goods Sold $141,569,221.61 $130,196,645.26 ($11,372,576.35) -8% 57500 Freight $4,302,951.46 $4,240,263.09 ($62,688.37) -1% 60000 Advertising Expense $897,140.01 $1,036,854.01 $139,714.00 16% 61000 Auto Expenses $208,974.39 $210,502.80 $1,528.41 1% 62000 Research and Development $31,212,334.17 $528,870.44 ($30,683,463.73) -98% 64000 Depreciation Expense $133,000.00 $446,000.00 $313,000.00 235% 64500 Warehouse Salaries $4,633,383.82 $4,720,715.56 $87,331.74 2% 65000 Property Tax Expense $80,495.32 $99,332.45 $18,837.13 23% 66000 Legal and Professional Expense $3,605,133.96 $4,913,224.45 $1,308,090.49 36% 67000 Bad Debt Expense $1,622,425.99 $0.00 ($1,622,425.99) -100%
68000 Insurance Expense $853,942.65 $36,106.92 ($817,835.73)
-96% 70000 Maintenance Expense $61,136.04 $35,502.87 ($25,633.17) -42% 70100 Utilities $135,642.99 $137,332.18 $1,689.19 1% 70110 Phone $76,373.78 $52,599.02 ($23,774.76) -31% 70120 Postal $128,033.21 $77,803.61 ($50,229.60) -39% 71000 Miscellaneous Office Expense $17,023.27 $24,891.82 $7,868.55 46% 72000 Payroll Tax Exp $1,550,989.06 $1,577,811.85 $26,822.79 2% 73000 Pension/Profit-Sharing Plan Ex $3,000,000.00 $3,300,000.00 $300,000.00 10% 74000 Rent or Lease Expense $2,603,485.87 $1,206,574.00 ($1,396,911.87) -54% 77500 Administrative Wages Expense $16,875,305.98 $16,197,225.43 ($678,080.55) -4% 78000 Interest Expense $875,000.00 $2,591,736.50 $1,716,736.50 196% 78500 Income Tax Expense - Federal $2,365,000.00 $8,900,000.00 $6,535,000.00 276% 78510 Income Tax Expense - State $429,000.00 $3,100,000.00 $2,671,000.00 623% 80000 Loss on Legal Settlement $19,172,000.00 $0.00 ($19,172,000.00) -100% $0.00 $0.00
Explanation / Answer
Line of Credit:
24100 Line of Credit ($10,000,000.00) ($44,403,000.00) ($34,403,000.00) 344
Company can adjust their repayment amounts as needed, based on their budget or cash flow. For example, they can repay the entire outstanding balance at once or just make the minimum monthly payments, Sometimes it may happen that due to unavailability of cash either temporarily or permanently to meet the debt due will result in the company need to force the borrower take only certain interest amount or delay the payment to make over. And mainly we have to see whether the going concern is going to effected or not and we cannot decide on this one factor because the debts due is may be due to increase in taking more loans
Here in this case, Company had taken huge loans and compared to last year it is observed that Have huge loans taken this year compared to no loan during last year
Conclusion:
Here We don’t need to worry as Assets of the company are also increased along with the liabilities as company may expanding the business in many areas of scope this year . and It is purchased huge assets on loans this year. The company may defer some loans till the earning of money by utilising the all assets for production or expansion and thereby earning huge amounts by sale of service or merchandise .
Machinery, Equipment, Office Furniture
Machinery, Equipment, Office Furniture $433,217.10 $2,929,097.13 $2,495,880.03 576%
Analysis: The company goals set at high levels by facing the risk ,the company might be taken this step based on , will growth in the economy or industry may be good or huge bumb in near future through , either to company products or services.
So Company take huge steps towards buying an asset for loans to avail the Opportunities in Upcoming industry or economy by using their strength.
Accum. Depreciation
Accum. Depreciation ($164,000.00) ($610,000.00) ($446,000.00) 272%
When assets increase automatically Accumulated depreciation also Increases ,the assets during the year increased 576% and accumulated depreciation is increased only 272% ,may be some of the assets may not be ready for intended use,,More or less by end of next year It may reach the same levels
Income Tax Expense:
Company earned huge profits this year as a result have to incurred huge taxes this year
