Up North Company recently hired a new accountant whose first task was to prepare the financial statements for the year ended December 31, 2021. The following is what she produced:

The owner of the company, James Prideaux, is confused by the statements and has asked you for your help. He doesn?t understand how, if his Owner?s Capital account was $90,000 at December 31, 2020, owner?s equity is now only $29,615. The accountant tells you that $29,615 must be correct because the balance sheet is balanced. The accountant also tells you that she didn?t prepare a statement of owner?s equity because it is an optional statement. You are relieved to find out that, even though there are errors in the statements, the amounts used from the accounts in the general ledger are the correct amounts.

Instructions

Prepare the correct multiple-step income statement, statement of owner?s equity, and classified balance sheet. You determine that $6,000 of the loan payable on the equipment must be paid during 2022. Up North Company uses the periodic system with the earnings approach.

Why do we not include both the beginning and the ending merchandise inventory amounts on the balance sheet?

Transcribed Image Text:

UP NORTH COMPANY Income Statement December 31, 2021 Sales $474,000 Less Unearned revenue $ 6,600 Purchase discounts 4,175 10,775 Total revenue 463,225 Cost of goods sold Purchases 278,4000 Less: Purchase returns and allowances 4,800 Net purchases 283,200 Add: Sales returns and allowances 9,000 Cost of goods available for sale Add: Freight out Cost of selling merchandise Gross profit margin Operating expenses Freight in 292,200 11,400 303,600 159,625 5,400 Insurance expense 12,600 Interest expense 3,000 Rent expense 21,600 Salaries expense Total operating expenses 50,400 93,000 Profit margin 66,625 Other revenues Interest revenue $ 1,800 Investment by owner Other expenses 4,200 6,000 Depreciation expense Drawings by owner Profit from operations 8,400 57,600 66,000 (60,000) $ 6,625 UP NORTH COMPANY Balance Sheet Year Ended December 31, 2021 Assets $ 20,135 9,360 Cash Accounts receivable Merchandise inventory, January 1, 2021 Merchandise inventory, December 31, 2021 36,000 28,800 Equipment Less loan payable (for equipment purchase) Total assets $84,000 60,000 24,0X0 S118,295 Liabilities and Owner's Equity Long-term investment $ 60,000 Accumulated depreciation-equipment Sales discounts 25,200 3,480 Total liabilities 88,680 Owner's equity Total liabilities and owner's equity 29,615 $118,295