CASE 4. Errors on a Balance Sheet There are several mistakes in the setup and content of the balance sheet shown below. Ngon am Bookkeeping Service Balance Sheet As at September 30, 20- Assets Liabilities Cash 1 000 Accounts Receivable Accounts Payable 2 000 Equipment Supplies 1 000 Bank Loan Land 28 000 Total Liabilities Building 100 000 Owner's Equity Ngon Lam, Capital Total Liabilities and Total Assets 104 000 Owner's Equity 3 000 5 000 30 000 38 000 106 000 106 000 Questions 1. List the errors. 2. What are the correct totals for Assets, Liabilities, and Liabilities and Owner's Equity? Use of Business Funds CASE 5 You are the accountant for Lily Shen, who owns and operates Superior Personnel. This firm specializes in supplying temporary office employees to firms that need short-term assistance during peak work periods. Lily has just purchased a car for her daughter Marlene, who attends college. She instructs you to prepare a cheque payable to Ed Learn Motors for the down payment on the car and to make monthly car payments to the local bank. She xpuests that the cheques come from the company's bank account and that you list the car as an asset on Superior Personnel's balance sheet. When you ask why she wants the transaction handled in this manner, she informs you that she assumes the owner of a business can use the business funds however she wishes. Questions 1. Is Lily correct in her assumption? 2. Which accounting principle should you use to support your answer? CASE 3 Valuation of Assets David Henhawk owns a small bicycle courier service. He is the sole owner and has chosen to follow the Accounting Standards for Private Enterprise for financial reporting, David will be approaching the bank for a loan to support business operations. He asks you, his accountant, to prepare a current balance sheet for him to show the bank regarding his loan application. A friend of David's, who works in the real estate business, has indicated that a building owned by the business would be worth $400 000 if offered for sale on the current market. The building is listed as an asset on the company's books at $250 000, its original cost price. David feels the higher amount should be used on the balance sheet because it better reflects the value of his business and would impress the bank. Questions 1. Under the Accounting Standards for Private Enterprise cost principle, what amount should be shown on the balance sheet for the building? 2. Under the International Financial Reporting Standards fair value principle, what amount should be shown on the balance sheet? 3. Should you follow David's instructions when you prepare the balance sheet? Give reasons for your answer. 4. Would the bank be interested in the current value of the building? Why? 5. What advice would you give David