Case 7-1 Alternative Financial Statement Treatments The following financial statement was prepared by employees of your client, Linus Construction Company. Linus Construction Company Statement of Financial Position December 31, 2023 Current Assets: Cash $ 182,200 Accounts receivable (less allowance of $14,000 for doubtful accounts} 220,700 Materials, supplies, labor, and overhead charged to construction 2,026,000 Materials and supplies not charged to construction 288,000 Deposits made to secure performance of contracts @,@ EME Less Current Liabilities: Accounts payable to subcontractors $ 141,100 Payable for materials and supplies 65,300 Accrued payroll 8,260 Accrued interest on mortgage note 12,000 Estimated taxes payable J,@ , Net working capital $2,784,240 Property, Plant, and Equipment [at cost): Cost Depreciation Value Land and equipment $ 983,300 $310,000 $ 673,300 Machinery and equipment 905,000 338,000 56?,000 Payments made on leased equipment , , 1 82,119,000 88T8,699 31,240,301 Deferred Charges: Prepaid taxes and other expenses 11 ,700 Points charged on mortgage note _10, 1,, Total net working capital and noncurrent assets $4,04?,041 Less Deferred Liabilities: Mortgage note payable 300,000 Unearned revenue on work in progress 1,, 2,, Total net assets Si,m, Stockholders' Equity: 6% preferred stock at par value $400,000 Common stock at par value 800,000 Paid-in surplus 210,000 Retained earnings 483,641 Treasury stock at cost (are) shares) (,m) Total stockholders equity 51,84QD '1 The statement is not accompanied by footnotes, but you have discovered the following: a. The average completion period for the company'sjobs is 18 months. The company's method ofjournalizing contract transactions is summarized in the following proforma entries: 1. Materials supplies, labor, and overhead charged to construction $XXX Cash, various other assets, payables, depreciation, and other accounts $XXX To record actual costs incurred on jobs 2. Materials, supplies, labor, and overhead charged to construction $XXX Unearned revenue on work in progress $XXX To accrue but defer estimated profit earned on work in progress 3. Accounts receivable $XXX Unearned revenue on work in progress $XXX To record actual costs incurred on jobs 4. Cash $XXX Accounts receivable $XXX To record collections 5. Accounts receivable $XXX Unearned revenue on work in progress $XXX Prot realized on completed jobs $XXX To record completion ofjobs b. Linus both owns, and leases equipment used on construction jobs. Typically, its equipment lease contracts provide that Linus may return the equipment upon completion of a job or may apply all rentals in full toward purchase ofthe equipment. About 70% of lease rental payments made in the past have been applied to the purchase of equipment. While leased equipment is in use, rents are charged to the account payments made on leased equipment (except for $1 balance} and to jobs on which the equipment has been used. In the event of purchase, the balance in the payments made on leased equipment account is transferred to the machinery and equipment account, and the depreciation and other related accounts are corrected. c. Management is unable to develop dependable estimates of costs to complete contracts in progress. Required: a. Identify the weaknesses in the nancial statement. b. For each item identified in part (a), indicate the preferable treatment and explain why the treatment is preferable