Identify errors using GAAP; prepare a classified balance sheet; and calculate the current ratio. An inexperienced accountant has put together a balance sheet for Art Objects Inc. The balances shown are at September 30, 2009. (LO 1, 3, 5)

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a. Identify the errors in the balance sheet.

b. Using good form, prepare a corrected, classified balance sheet.

c. Calculate the current ratio using the corrected amounts from the balance sheet prepared in

b. What does this ratio measure? Discuss the implications of Art Objects' current ratio.

d. Explain why it is important to properly follow GAAP when preparing financial statements.

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Assets Liabilities and Equity Current Assets: Current Liabilities: Prepaid insurance $ 30,000 Accounts receivable 5 2,000 Cash 6,000 Other long-term assets 5,000 Land 28,000 Salaries payable 8,000 Other current assets 5,000 Intangible assets 35,000 Interest receivable 2,000 Accounts payable 4,000 Total current assets 71,000 Total current liabilities 54,000 Accounts payable 42,000 Shareholder's Equity Buildings 36,000 Retained earnings 52,000 Equipment 18,000 Common stock 47,000 Intangible assets Total noncurrent assets 6,000 102,000 Short-term note 20,000 Total shareholders' equity 119,000 Total Assets $ 173,000 Total Liabilities and Equity $ 173,000