Up North Company recently hired a new accountant whose first task was to prepare the financial statements for the year ended December 31, 2024. 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, 2023, 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 2025. Up North Company uses the periodic inventory system with the earnings approach.

Taking It Further

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

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Sales Less: Unearned revenue Purchase discounts Total revenue Cost of goods sold Purchases Less: Purchase returns and allowances Net purchases Add: Sales returns and allowances Cost of goods available for sale Add: Delivery expense Cost of selling merchandise Gross profit margin Operating expenses Freight in Insurance expense Interest expense Rent expense Salaries expense Total operating expenses Profit margin Other revenues Interest revenue Investment by owner UP NORTH COMPANY Income Statement December 31, 2024 Other expenses Depreciation expense Drawings by owner Profit from operations $1,800 4,200 8,400 57,600 $ 6,600 4,175 278,400 4,800 283,200 9,000 292,200 11,400 5,400 12,600 3,000 21,600 50,400 6,000 66,000 $474,000 10,775 463,225 303,600 159,625 93,000 66,625 (60,000) $ 6,625