Bell Farm and Garden Equipment reported the following information for 2018: Net Sales of Equipment............................................................................$2,450,567 Other Income......................................................................................................6,786

Question:

Bell Farm and Garden Equipment reported the following information for 2018:

Net Sales of Equipment............................................................................$2,450,567

Other Income......................................................................................................6,786

Cost of Goods Sold......................................................................................1,425,990

Selling, General, and Administrative Expense.............................................325,965

Net Operating Income.................................................................................$ 705,398

Selected information from the balance sheet as of December 31, 2018, follows:

Cash and Marketable Securities.....................................................$113,545

Inventory..............................................................................................248,600

Accounts Receivable.............................................................................82,462

Property, Plant, and Equipment-Net................................................335,890

Other Assets............................................................................................5,410

Total Assets......................................................................................$785,907

Assume that a major customer returned a large order to Bell on December 31, 2018. The amount of the sale had been $146,800 with a cost of sales of $94,623. The return was recorded in the books on January 1, 2019. The company president does not want to correct the books. He argues that it makes no difference as to whether the return is recorded in 2018 or 2019. Either way, the return has been duly recognized.

Required

a. Assume that you are the CFO for Bell Farm and Garden Equipment Co. Write a memo to the president explaining how omitting the entry on December 31, 2018, could cause the financial statements to be misleading to investors and creditors. Explain how omitting the return from the customer would affect net income and the balance sheet.

b. Why might the president want to record the return on January 1, 2019, instead of December 31, 2018?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...