Corrected Financial Statements Heidi's Bakery Inc. operates a small pastry business. The company has always maintained a complete and accurate set of records. Unfortunately, the company's accountant left in a dispute with the president and took the 1998 financial statements with her. The balance sheet and the income statement shown below were prepared by the company's president.

The president is very disappointed with the net loss for the year because net income has averaged $21,000 over the last 10 years. He has asked for your help in determining whether the reported net loss accurately reflects the profitability of the company and whether the balance sheet is prepared correctly.

Required 1. Prepare a corrected income statement for the year ended December 31, 1998. 2. Prepare a statement of retained earnings for the year ended December 31, 1998. (The actual amount of Retained Earnings on January 1, 1998, was $39,900. The December 31, 1998, balance shown above is incorrect. The president simply "plugged" this amount in to make the balance sheet balance.) 3. Prepare a corrected balance sheet at December 31, 1998. 4. Draft a memo to the president explaining the major differences between the income statement he prepared and the one you prepared.

Transcribed Image Text:

Revenues: HEIDI'S BAKERY INC. INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998 Accounts receivable $15,500 Pastry revenue-cash sales 23,700 $39,200 Expenses: Dividends $ 5,600 Accounts payable 6,800 Utilities 9,500 Salaries and wages 18,200 Net loss 40,100 $ (900)