P1-57A. (Learning Objectives 3, 4: Using the accounting equation; preparing a Balance Sheet;

making decisions) The manager of Headlines, Inc., prepared the company’s Balance Sheet while the accountant was ill. The Balance Sheet contains numerous errors. In particular, the manager knew that the Balance Sheet should balance, so he plugged in the shareholders’ equity amount needed to achieve this balance. The shareholders’ equity amount is not correct. All other amounts are accurate.

Requirements 1. Prepare the correct Balance Sheet and date it properly. Compute total assets, total liabilities, and shareholders’ equity.
2. Is Headlines actually in a better (or worse) financial position than the erroneous Balance Sheet reports? Give reasons for your answer.
3. Identify the accounts listed on the incorrect Balance Sheet that should not be reported on the Balance Sheet. State why you excluded them from the correct Balance Sheet you prepared for Requirement 1. On which financial statement should these accounts appear?

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1 A1 2 3 Cash 4 Equipment Headlines, Inc. Balance Sheet Assets 5 Accounts payable 6 Utilities expense 7 Advertising expense 8 Land 9 Salary expense 10 11 Total assets 12 For the Month Ended June 30, 20X6 Liabilities $ 7,000 Notes receivable 40,000 Interest expense $ 1,500 1,500 7,500 Office supplies 1,200 1,300 Accounts receivable 2,750 650 Notes payable 55,000 78,000 Total 75,450 3,000 Shareholders' Equity Shareholders' equity 62,000 $137,450 Total liabilities $137,450