Refer to the financial statement for the current year and prior two years. Analyze the year-to-year change in account balance for at least five financial statement line items. Document the trend analysis in a format similar to the following:

Account Balance

Account Balance % Change 2010 –2011 % Change 2009–2010
Net sales

b. Calculate at least five common ratios and document them in a format similar to the following:
Ratio 2011 2010 2009
Current ratio


c. Based on the analytical procedures calculated in parts a. and b., summarize your observations about Pinnacle’s business, including your assessment of the client’s business risk.

d. Go to the Pinnacle link on the textbook Web site (www.prenhall.com/arens) and open the Pinnacle income statement, which is located in the Pinnacle Income Statement worksheet of the Pinnacle_Financials Excel file. Use the income statement information to prepare a common-size income statement for all three years. See Figure 8-7 (p. 229) for an example. Use the information to identify accounts for which you believe there is a concern about material misstatements. Use a format similar to the following:

Account Balance

Estimate of $ Amount of Potential Misstatement

e. Use the three divisional income statements in the Pinnacle_Financials Excel file on the Web site to prepare a common-size income statement for each of the three divisions for all three years. Each division’s income statement is in a separate worksheet in the Excel file. Use the information to identify accounts for which you believe there is a concern about material misstatements. Use a format similar to the one in requirement d.

f. Explain whether you believe the information in requirement d or e provides the most useful data for evaluating the potential for misstatements. Explain why. 246 247