Magliochetti Moving Corporation has been in operation since January 1, 2010. It is now December 31, 2010, the end of the annual accounting period. The company has not done well financially during the first year, although revenue has been fairly good. The three stockholders manage the company, but they have not given much attention to recordkeeping. In view of a serious cash shortage, they have applied to your bank for a $20,000 loan. You requested a complete set of financial statements. The following 2010 annual financial statements were prepared by a clerk and then were given to the bank.

After briefly reviewing the statements and "looking into the situation," you requested that the statements be redone (with some expert help) to "incorporate depreciation, accruals, inventory counts, income taxes, and so on." As a result of a review of the records and supporting documents, the following additional information was developed:
a. The Supplies of $6,000 shown on the balance sheet has not been adjusted for supplies used during 2010. A count of the supplies on hand on December 31, 2010, showed $1,800.
b. The insurance premium paid in 2010 was for years 2010 and 2011. The total insurance premium was debited in full to Prepaid Insurance when paid in 2010 and no adjustment has been made.
c. The equipment cost $40,000 when purchased January 1, 2010. It had an estimated annual depreciation of $8,000. No depreciation has been recorded for 2010.
d. Unpaid (and unrecorded) salaries at December 31, 2010, amounted to $2,200.
e. At December 31, 2010, transportation revenue collected in advance amounted to $7,000. This amount was credited in full to Transportation Revenue when the cash was collected earlier during 2010.
f. Income tax expense was $3,650 (the tax rate is 25 percent).

Required:
1. Record the six adjusting entries required on December 31, 2010, based on the preceding additional information.
2. Recast the preceding statements after taking into account the adjusting entries. You do not need to use classifications on the statements. Suggested form for the solution:

3. Omission of the adjusting entries caused:
a. Net income to be overstated or understated (select one) by $$______.
b. Total assets on the balance sheet to be overstated or understated (select one) by $______.
4. For both of the unadjusted and adjusted balances, calculate these ratios for the company: (a) earnings per share and (b) net profit margin. There were 10,000 shares outstanding all year. Explain the causes of the differences and the impact of the changes on financial analysis.
5. Write a letter to the company explaining the results of the adjustments, your analysis, and your decision regarding theloan.

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MAGLIOCHETTI MOVING CORP MAGLIOCHETTI MOVING CORP Balance Sheet At December 31.2010 Income Statement For the Period Endd December 31, 2010 $85,000 Transportation revenue Expenses: Assets 2.000 3,000 6,000 40,000 4,000 27.000 $82,000 Cash Salaries expense Supplies expense Other expenses Total expenses 17,000 Receivables 12,000 Supplies 18,000 Equipment 47,000 Prepaid insurance Remaining assets Net income $38.000 |Total assets Liabilities Accounts payable S 9.000 Stockholders' Equity Contributed capital (10,000 shares outstanding 35,000 Retained earnings Total liabilities and stockholders' equity 38,000 82.000 Changes Amounts Reported DebitCredit Corrected Amounts (List here each item from the two statements)