GG Company was formed on January 1, 2014. On December 31, Guy Gélinas, the owner, prepared a balance sheet:

Guy willingly admits that he is not an accountant. He is concerned that his balance sheet might not be correct. He gives you the following additional information:
1. The boat actually belongs to Guy Gélinas, not to GG Company. However, because he thinks he might take customers out on the boat occasionally, he decided to list it as an asset of the company. To be consistent, he also listed as a liability of the company the personal bank loan that he took out to buy the boat.
2. Guy spent $15,000 to purchase more supplies than he usually does, because he heard that the price of the supplies was expected to increase. It did, and the supplies are now worth $20,000. He thought it best to record the supplies at $20,000, as that is what it would have cost him to buy them today.
3. Guy has signed a contract to purchase equipment in January 2015. The company will have to pay $5,000 cash for the equipment when it arrives and the balance will be payable in 30 days. Guy has already reduced Cash by $5,000 because he is committed to paying this amount.
4. The balance in G. Gélinas, Capital is equal to the amount Guy originally invested in the company when he
started it on January 1, 2014.
5. Guy combined notes payable of $15,000 with accounts payable of $30,000 as he thought this was more
efficient.
6. Guy paid $1,200 for a one-year insurance policy on December 31. He did not include it in the balance sheet
because the insurance is for 2015 and not 2014.
7. Guy knows that a balance sheet needs to balance but on his first attempt he had $108,000 of assets and $83,000 of liabilities and owner's equity. He reasoned that the difference was the amount of profit the company earned this year and added that to the balance sheet as part of owner's equity.
Instructions
(a) Identify any corrections that should be made to the balance sheet, and explain why by referring to the appropriate accounting concepts, assumption, or principle.
(b) Prepare a corrected balance sheet for GG Company. (Hint: To get the balance sheet to balance, adjust owner's equity.)
TAKING IT FURTHER Assume that Guy did not make any withdrawals from the company in 2014, nor any investments other than his initial investment of $25,000. What was the actual profit for the year?

Transcribed Image Text:

GG COMPANY Balance Sheet December 31,2014 Assets Liabilities and Owner's Equity Cash Accounts receivable Supplies Boat $15,000 55,000 20,000 18,000 $108,000 Accounts and notes payable 45,000 13,000 25,000 25,000 $108,000 Boat loan payable G. Gélinas, capital Profit for 2014