Problem 24-1 Retained eamings Your firm has been engaged to examine the financial statements of Teal Corporation for the year 2017. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2012. The client provides you with the information below. Common stock, par value $10, authorized 200,000 shares, 182,000 shares issued 1,820,000 4.685.880 TEAL CORPORATION BALANCE SHEET DECEMBER 31, 2017 The supplementary information below is also provided. 1. On May1, 2017, the corporation issued at 9040, $780,000 of bonds to finance plant expansion The Liabilities long-term bond agreement provided for the annual payment of interest every May1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization. The bookkeeper made the following mistakes. (a) In 2015, the ending inventory was overstated by $182,000. The ending inventories for 2016 and Current assets $1,890,000 Cu Other assets liabilities 5,222,80 Long-tem liabilities 1,464,000 4,685,880 $7,112880 2. $7,112,88 2017 were correctly computed (b) In 2017, accrued wages in the amount of $230,000 were omitted from the balance sheet, and these expenses were not charged on the income statement. (c) An analysis of current assets discloses the following. In 2017, a gain of $173,000 (net of tax) on the sale of certain plant assets was credited directly to Cash (restricted in the amount of $297,000 for plant expansion) Investments in land Accounts receivable less allowance of $31,000 Inventories (LIFO flow assumption) $570,000 185,000 484,000 651,000 $1,890,000 retained eamings. A major competitor has introduced a line of products that will compete directly with Teal's primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor's line will be ofcomparable quality but priced 50% below Teal's line. The competitor announced its new line on January 14, 2018. Teal indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs. 3. Other assets include: 4. You leamed on January 28, 2018, prior to completion of the audit, of heavy damage because of a recent Prepaid expenses Plant and equipment less accumulated depreciation of $1,420,000 Cash surrender value of life insurance policy Unamortized bond discount Notes receivable (short-term) $63,000 4,141,000 84,000 74,880 164,000 252,000 444,000 5,222,880 fire to one of Teal's two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. Analyze the above information to prepare a corrected balance sheet for Teal in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made throueh retained eanings. (List current assets in order of liquidity. Enter account name only and do not provide descriptive information.) Current liabilities include Accounts payable Notes payable (due 2020) Estimated income taxes payable Premium on common stock S510,000 160,000 144,000 149,000 963,000 Long-term liabilities include Unearned revvenue Dividends payable (cash) 8% bonds payable (due May 1, 2022) S481,000 203,000 780,000 $1,464,000