Solution-Create a list of possible explanations

Create a list of possible explanations

Assignment Help Accounting Basics

Reference no: EM132898286

Question - Planning analytical procedures using profitability ratios Li Chen has calculated profitability ratios using data extracted from his client's pre-audit trial balance. He also has the values for the same ratios for the preceding two years (using audited figures).

The data for the gross profit and profit margins are:

	2022	2021	2020
Gross profit margin	45%	35%	40%
Profit margin	9%	15%	20%

Li is a little confused because the profit margin shows declining profitability but the gross profit margin has improved in the current year and is higher in 2022 than in the previous two years.

Required -

a. Create a list of possible explanations for the pattern observed in the gross profit and profit margins.

b. Which of your explanations suggest additional audit work should be planned? For each, discuss the accounts and/or transactions that would need special attention in the audit.

Reference no: EM132898286

Questions Cloud

Natural killer cells kill other cells-role of macrophages : Describe the process whereby natural killer cells kill other cells and the role of macrophages in the process.

Determine the cost of goods sold and gross profit : Determine the cost of goods sold and gross profit amounts Dorado should record for the three months ending September 30

What did you learn about urinary system : What did you learn about the urinary system that was new? How will you use that information when billing and coding? Provide examples.

What is amount of stockholders equity at the end of year : The company did not issue any common stock, but it distributed dividends of $55,000. What is the amount of stockholders' equity at the end of the year

Create a list of possible explanations : Create a list of possible explanations for the pattern observed in the gross profit and profit margins

Cells plasma membrane easily : How are steroid hormones able to pass though the cells plasma membrane easily?

What is the function of chosen sensory cell : What is the function of a chosen sensory cell? Discuss any technological advancements that are exciting and novel?

At which amount should the corporation record the building : The building has been assessed at $445,000 for property tax purposes. At which amount should the corporation record the building in its accounting records

Understanding joint location and function can be beneficial : Discuss a clinical scenario where understanding joint location and function can be beneficial

User Account

All Pages

Create a list of possible explanations

Reference no: EM132898286

Reference no: EM132898286

Questions Cloud

Reviews

Write a Review

Accounting Basics Questions & Answers

How much control does fed have over this longer real rate

Coures:- fundamental accounting principles

Accounting problems

Theory of interest - term structure of interest rates

Write a report on internal controls

Prepare the bank reconciliation for company

Cost-benefit analysis

Theory of interest

Liquidity and profitability

What is the expected risk premium on the portfolio

Simple interest and compound interest

Capm and venture capital

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT