Silberman Corporation was formed on January 1, 2007. At December 31, 2007, Scott Brantner, the president and sole stockholder, decided to prepare a balance sheet, which appeared as follows.

SILBERMAN CORPORATION Balance Sheet December 31, 2007 Assets Liabilities and Stockholders’ Equity Cash $20,000 Accounts payable $40,000 Accounts receivable 55,000 Notes payable 15,000 Inventory 33,000 Boat loan 18,000 Boat 24,000 Stockholders’ equity 55,000 Scott willingly admits that he is not an accountant by training. He is concerned that his balance sheet might not be correct. He has provided you with the following additional information. 1. The boat actually belongs to Brantner, not to Silberman Corporation. However, because he thinks he might take customers out on the boat occasionally, he decided to list it as an asset of the company. To be consistent he also listed as a liability of the corporation his personal loan that he took out at the bank to buy the boat. 2. The inventory was originally purchased for $21,000, but due to a surge in demand Scott now thinks he could sell it for $33,000. He thought it would be best to record it at $33,000.

Problems: Set A 39 Prepare an income statement, retained earnings statement, and balance sheet, and discuss results.

(SO 4, 5)

Marginal check figures

(in blue) provide a key number to let you know you're on the right track.

(a) Net income $4,300 Ret. earnings $2,300 Tot. assets $43,000 Determine items included in a statement of cash flows, prepare the statement, and comment.

(SO 4, 5)

=

(a) Net increase $34,000 Comment on proper accounting treatment and prepare a corrected balance sheet.

(SO 4, 5)

40 CHAPTER 1. Introduction to Financial Statements Tot.assets $84,000 Determine forms of business organization.

(SO 1)

ail D Identify users and uses of financial statements.

(SO 2, 4, 5)

ail D Prepare an income statement, retained earnings statement, and balance sheet, and discuss results.

(SO 4, 5) 3. Included in the accounts receivable balance is $12,000 that Scott loaned to his brother 5 years ago. Scott included this in the receivables of Silberman Corporation so he wouldn’t forget that his brother owes him money.

Instructions

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

(b) Provide a corrected balance sheet for Silberman Corporation. (Hint: To get the balance sheet to balance, adjust stockholders’ equity.)