Problem 24-1 Your firm has been engaged to examine the financial statements of Monty 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. MONTY CORPORATION BALANCE SHEET DECEMBER 31, 2017 Assets Liabilities Current assets $1,873,000 Current liabilities $975,000 Other assets 5,238,360 Long-term liabilities 1,414,000 Capital 4,722,360 $7,111,360 $7,111,360 An analysis of current assets discloses the following. Cash (restricted in the amount of $296,000 for plant expansion) Investments in land Accounts receivable less allowance of $30,000 Inventories (LIFO flow assumption) $567,000 183,000 476,000 647,000 $1,873,000 Other assets include: Prepaid expenses Plant and equipment less accumulated depreciation of $1,441,000 Cash surrender value of life insurance policy Unamortized bond discount Notes receivable (short-term) Goodwill Land $63,000 4,172,000 82,000 63,360 163,000 257,000 438,000 $5,238,360 Current liabilities include: Accounts payable Notes payable (due 2020) Estimated income taxes payable Premium on common stock $520,000 159,000 146,000 150,000 $975,000 $973,VUU Long-term liabilities include: Unearned revenue Dividends payable (cash) 8% bonds payable (due May 1, 2022) $498,000 196,000 720,000 $1,414,000 Capital includes: Retained earnings Common stock, par value $10; authorized 200,000 shares, 182,000 shares issued $2,902,360 1,820,000 $4,722,360 The supplementary information below is also provided. 1. On May 1, 2017, the corporation issued at 91.20, $720,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight- line method for discount amortization. 2. The bookkeeper made the following mistakes. (a) In 2015, the ending inventory was overstated by $180,000. The ending inventories for 2016 and 2017 were correctly computed. (b) In 2017, accrued wages in the amount of $222,000 were omitted from the balance sheet, and these expenses were not charged on the income statement. (c) In 2017, a gain of $174,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings. 3. A major competitor has introduced a line of products that will compete directly with Monty's primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor's line will be of comparable quality but priced 50% below Monty's line. The competitor announced its new line on January 14, 2018. Monty 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. 4. You learned on January 28, 2018, prior to completion of the audit, of heavy damage because of a recent fire to one of Monty'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 Monty 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 through retained earnings. (List current assets in order of liquidity. Enter account name only and do not provide descriptive information.) MONTY CORPORATION Balance Sheet December 31, 2017 Assets Current Assets Cash Accounts Receivable Less . Allowance for Doubtful Accounts Notes Receivable Inventories Prepaid Expenses Total Current Assets Long-term Investments Investments in Land Cash Surrender Value of Life Insurance Policy Cash Restricted for Plant Expansion Property, Plant and Equipment Plant and Equipment Less Accumulated Depreciation Land Intangible Assets Goodwill Goodwill Total Assets Liabilities and Stockholders' Equity Stockholders' Equity Accounts Payable Unearned Revenue Dividends Payable Salaries and Wages Payable Income Taxes Payable Interest Payable Total Liabilities Long-term Liabilities Notes Payable Bonds Payable Less . Unamortized Bond Discount Total Liabilities Stockholders' Equity Common Stock Paid-in Capital in Excess of Par Retained Earnings Total Stockholders' Equity Total Liabilities and Stockholders' Equity