Micado Corporation was formed on January 1, 2025. At December 31, 2025, Miko Liu, the president and sole stockholder, decided to prepare a balance sheet, which appeared as follows.

Miko willingly admits that she is not an accountant by training. She is concerned that her balance sheet might not be correct. She has provided you with the following additional information.

1. The boat actually belongs to Miko, not to Micado Corporation. However, because she thinks she might take customers out on the boat occasionally, she decided to list it as an asset of the company.
To be consistent, she also listed as a liability of the corporation her personal loan that she took out at the bank to buy the boat.

2. The inventory was originally purchased for $25,000, but due to a surge in demand Miko now thinks she could sell it for $36,000. She thought it would be best to record it at $36,000.

3. Included in the accounts receivable balance is $10,000 that Miko loaned to her brother 5 years ago.
Miko included this in the receivables of Micado Corporation so she wouldn't forget that her brother owes her money.

Instructions

a. Comment on the proper accounting treatment of the three items above.

b. Provide a corrected balance sheet for Micado Corporation.

Transcribed Image Text:

Assets Cash Accounts receivable Inventory Boat Micado Corporation Balance Sheet December 31, 2025 $20,000 50,000 36,000 24,000 Liabilities and Stockholders' Equity $30,000 15,000 22,000 63,000 Accounts payable Notes payable Boat loan Stockholders' equity