Quan, Inc., a privately held corporation, is negotiating a loan for expansion purposes and the bank requires audited financial statements. Before closing the accounting records for the year ended December 31, 2019, Quan's controller prepared the following comparative financial statements for 2019 and 2018:

Quan, Inc. Balance Sheets December 31, 2019 and 2018
	2019	2018
Cash ........................................................	$ 550,000	$ 300,000
Investment securities (reported at market; cost, $142,000) .......................................	156,000	0
Accounts receivable .................................	974,000	784,000
Allowance for doubtful accounts ...............	(100,000)	(64,000)
Inventories ................................................	850,000	770,000
Property and equipment ...........................	620,000	434,000
Accumulated depreciation ........................	(300,000)	(242,000)
Total assets ............................................	$2,750,000	$1,982,000
Accounts payable .....................................	$ 180,000	$ 154,000
Accrued expenses ....................................	160,000	40,000
Note payable, 5-year ................................	600,000	600,000
Estimated contingent liability ....................	200,000	0
Common stock, $10 par ...........................	420,000	420,000
Additional paid-in capital ..........................	260,000	260,000
Retained earnings ....................................	930,000	508,000
Total liabilities & owners' equity .............	$2,750,000	$1,982,000

Quan, Inc. Income Statements For the Years Ended December 31, 2019 and 2018
	2019	2018
Net sales .................................	$3,160,000	$2,500,000
Operating expenses:
Cost of sales .............................	$1,510,000	$1,380,000
Selling & administrative ..................	984,000	730,000
Depreciation ..............................	58,000	36,000
Estimated loss from lawsuit ...............	200,000	0
	$2,752,000	$2,146,000
Operating income ..........................	$ 408,000	$ 354,000
Unrealized gain on investment securities ..	14,000	0
Net income ................................	$ 422,000	$ 354,000

During the audit, the following additional information was obtained:

(a)		The investment portfolio consists of investments in trading securities with a total market value of $156,000 at December 31, 2019. The securities were purchased February 3, 2019, at a cost of $142,000.
(b)		As a result of errors in physical count, inventories were overstated by $30,000 at December 31, 2019.
(c)		On January 2, 2019, the cost of equipment purchased for $80,000 was mistakenly charged to repairs and maintenance. Quan depreciates this type of equipment over a 5-year life using the straight-line method, with no residual or salvage value.
(d)		Quan was named as a defendant in a lawsuit in October 2019. Quan's counsel is of the opinion that Quan has a good defense and does not anticipate any impairment of Quan's assets or that any significant liability will be incurred. However, Quan' counsel admits that loss of the suit is "possible." Quan's management wished to be conservative and established a loss contingency of $200,000 at December 31, 2019.
(e)		On January 24, 2016, before the 2019 financial statements were issued, Quan was notified that one of its largest customers had filed for bankruptcy as the result of a flood that destroyed a substantial portion of the company's assets on January 16, 2016. The customer's accounts receivable balance at December 31, 2019, was $144,000.
(f)		$100,000 of 5-year notes payable will mature September 30, 2016. In view of Quan's plans for expansion, management is seriously considering refinancing the notes when they become due.

a. Prepare a properly classified balance sheet for Quan, Inc., as of December 31, 2019. (Income tax considerations should be ignored.)

b. Identify the events and other information that should be disclosed in the notes to Quan's financial statements. (Do not prepare the notes.)