New West Company recently hired a new accountant whose first task was to prepare the financial statements for the year ended December 31, 2017. The following is what he produced:

The owner of the company, Lily Oliver, is confused by the statements and has asked you for your help. She doesn't understand how, if her Owner's Capital account was $75,000 at December 31, 2016, owner's equity is now only $24,680. The accountant tells you that $24,680 must be correct because the balance sheet is balanced. The accountant also tells you that he didn't prepare a statement of owner's equity because it is an optional statement. You are relieved to find out that, even though there are errors in the statements, the amounts used from the accounts in the general ledger are the correct amounts.
Instructions
Prepare the correct multiple-step income statement, statement of owner's equity, and classified balance sheet. You determine that $5,000 of the loan payable on the equipment must be paid during 2018.
Taking It Further
If a company uses a periodic inventory system, does it have to show on its income statement all of the details as to how cost of goods sold was calculated? Why or why not?

Transcribed Image Text:

NEW WEST COMPANY Income Statement December 31, 2017 S 5,500 8,980 386,020 S232,000 Less: Purchase returns and allowances 236,000 Add: Sales returns and allowances Cost of goods available for sale 133,020 55,520 1,500 3,500 owner 7,000 48,000 (50,000) S 5,520 owner ons NEW WEST COMPANY Balance Sheet Year Ended December 31, 2017 Assets Cash Accounts receivable Merchandise inventory, January 1,2017 Merchandise inventory, December 31, 2017 Equipment Less: loan payable (for equipment purchase) $16,780 7,800 30,000 24,000 $70,000 50,000 20,000 $98,580 Total assets Liabilities and Owner's Equity Long-term investment Accumulated depreciation-equipment Sales discounts Total liabilities Owners equity $50,000 21,000 2,900 73,900 24,680 $98,580 Total liabilities and owners equity