Problem 24-1 Your firm has been engaged to examine the financial statements of Skysong 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 SKYSONG CORPORATION BALANCE SHEET DECEMBER 31, 2017 Liabilities Current assets $1,868,000 Current labi ties $949,000 1442,000 4,728,50D $7,119,500 Other assets 5,251,500 Long-term liabilities Capital $7,119,500 An analysis of current assets discloses the following. Cash (restricted in the amount of $304,000 for plant expansion) Investments in land Accounts receivable less allowance of $30,000 Inventories (LIFO flow assumption) $564,000 187,000 474,000 643,000 $1,868,000 Other assets include Prepaid expenses Plant and equipment less accumulated depreciation of $1,404,000 Cash surrender value of life insurance policy Unamortized bond discount Notes receivable (short-term) 160,000 $5,251,500 Current kabi ties include: $501,000 154,000 143,000 151,000 Accounts payable Notes payable (due 2020) Estimated income taxes payable Premium on common stock Long-term liabilities include Unearned revenue Dividends payable (cash) 8% bonds payable (due May 1, 2022) $496,000 196,000 $1,442000 Capital includes: $2.928,500 1,800,000 4,728,500 Retained earnings Common stock, par value $10, authorized 200,000 shares, 180,000 shares issued The supplementary information below is also provided 1. On May 1, 2017, the corporation issued at 94.60, $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 $182000. The ending inventories for 2016 and 2017 were correctly computed. (b) in2n7, mecruaemenes in the aount of $225,000 were omitted from the balance sheet. and thiese expenses were not charged on (c) In 2017, a gain of $173,000 (net of tax) on the sale of certain plant assets was credited directly to retained eamings. the income statement. 3. A major competitor has introduced a line of products that will compete directly with Skysong'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 Skysongs line. The competitor announced its new line on January 14, 2018. Skysong 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 Skysong'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 Skysong 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.) SKYSONG CORPORATION Balance Sheet Assets Liabilities and Stockholders' Equity