The bookkeeper for Powell Import Service Agency was confused when he prepared the following financial statements.Powell Import Service Agency Profit and Expense Statement December 31, 2000 Expenses:

Salaries EXPOMSC.....sscsescseessesssesesnecsseersecsstesnecsnecssssssecsaeses Utilities ExPense ......cecssecsnessneerneesseesseccnessessesesenessnscenscenees ACCOUNTS reCeiVable.........ssrssesssscsecreessenrensoncessenes C. Powell, Withdrawals........s:ssssssssessesssrssnseneessessesees Office SUPPHieS..........sccsecsscsneesescnscreecseessssssess Total EXPeNSeS.....csssecesssesseesessnessecersenseeseesss Revenues:

SEPrVICE FEVENUCS....ccccreccnscseccussroorscscsesessnscsnssessasersecnesasese Accounts payable......sccssecsecsereenees Pe ccevstee tenet neeestse Accumulated depreciation: office equipment............ 1,800 Total revenues ..........esseccsssssessorsescoseessesnenesssonsonorecres $ 49,900 Net Revenues .........sssssscsssssossssnscsesssessussessessenssnscssssnessnesssonvsresenoeses $ 2,400 Powell Import Service Agency Balancing Statement For Year Ended December 31, 2000 Liabilities Assets Mortgage payable ..........scsssecsesses $27,000 BUGIS Srcreccccccmeccterecescceceemragece $44,000 Accumulated depreciation: Depreciation expense:

building tui dit .f-ctaz2-sacoecsresactonesanssctonse 1,600 Total Liabilities ... Office EqUIPMENE ........2:seecceeseerees 9,700 Depreciation expense:

C. Powell, capital? ........c:sssecseeseees 27,000 Office EQUIPMENL........2-ssesseseeeees 900 Total Liabilities and ASIN cercrsccassnccesasasscerenesceeetvonteces 4,200 Owner’s Equity..........ssssessseessee $60,400 Total ASS€tS.......sescsessesseessessessessnees $60,400 9$24,600 beginning capital + $2,400 net revenues C. Powell asks for your help. He says: “Something is not right! My company had a fantastic year in 2000; I’m sure it made more than $2,400. | don’t remember much about accounting, but | do recall that ‘accumulated depreciation’ should be subtracted from the cost of an asset to determine its book value.” You agree. After examining the financial statements and related accounting records, you find that, with the exception of office supplies, the amount of each item is correct even though the item might be incorrectly listed in the financial statements. You determine that the office supplies used during the year amount to

$800 and that the office supplies on hand at the end of the year amount to $700.

Required: (1) Review each financial statement and indicate any errors you find.

(2) Prepare a corrected 2000 income statement, statement of changes in owner’s equity, and ending balance sheet.

(3) Compute the profit margin for 2000 to verify or refute C. Powell's claim that his company had a fantastic year.  lop74