Case 2. (Learning Objectives 2, 5: Analyzing a company as an investment) A year out of college, you have $10,000 to invest. A friend has started GrandPrize Unlimited, Inc., and she asks you to invest in her company. You obtain the company’s financial statements, which are summarized at the end of the first year as follows:

Conversations with your friend turn up the following facts:

a. Revenues and receivables of $25,000 were overlooked and omitted.

b. Advertising costs of $45,000 were recorded as assets. These costs should have been expenses. GrandPrize Unlimited paid cash for these expenses and recorded the cash payment correctly.

c. The company owes an additional $10,000 for accounts payable.
Requirements 1. Prepare corrected financial statements.
2. Use your corrected statements to evaluate GrandPrize Unlimited’s results of operations and financial position. (Challenge)
3. Will you invest in Grand Prize Unlimited? Give your reason. (Challenge)

Transcribed Image Text:

A1 Grand Prize Unlimited, Inc. Income Statement 1 2 Revenues 3 Expenses 4 Net income 5 Year Ended Dec. 31, 20X6 $ 120,000 75,000 $ 45,000