Problem 24-1

Your firm has been engaged to examine the financial statements of Tamarisk 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.

The supplementary information below is also provided.

1.		On May 1, 2017, the corporation issued at 92.00, $750,000 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 $187,000. The ending inventories for 2016 and 2017 were correctly computed.
		(b)	In 2017, accrued wages in the amount of $223,000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
		(c)	In 2017, a gain of $175,000 (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 Tamarisks primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitors line will be of comparable quality but priced 50% below Tamarisks line. The competitor announced its new line on January 14, 2018. Tamarisk 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 Tamarisks 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 Tamarisk 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.)

TAMARISK CORPORATION BALANCE SHEET DECEMBER 31, 2017 Assets Liabilities Current assets $1,880,000 Current liabilities Other assets $971,000 1,444,000 4,596,000 $7,011,000 5,131,000 Long-term liabilities Capital $7,011,000 An analysis of current assets discloses the following. Cash (restricted in the amount of $299,000 for plant expansion) Investments in land Accounts receivable less allowance of $31,000 Inventories (LIFO flow assumption) $580,000 184,000 472,000 644,000 $1,880,000 Other assets include: Prepaid expenses Plant and equipment less accumulated depreciation of $1,410,000 Cash surrender value of life insurance polic Unamortized bond discount Notes receivable (short-term) Goodwill Land $64,000 4,059,000 82,000 60,000 160,000 257,000 449,000 $5,131,000 Current liabilities include: Accounts payable Notes payable (due 2020) Estimated income taxes payable Premium on common stock $515,000 160,000 143,000 153,000 S971,000