Question
Question #1. (30 marks) The summary financial statements of Pedro Ltd on December 31, 2018, are as follows: Cash$5,000 A/R39,000 Inventory79,000 PPE, net 125,000 Total$248,000
Question #1.
(30 marks)
The summary financial statements of Pedro Ltd on December 31, 2018, are as follows:
Cash$5,000
A/R39,000
Inventory79,000
PPE, net125,000
Total$248,000
A/P$75,000
LT-debt62,000
C/S60,000
R/E51,000
Total$248,000
The following errors were made by an inexperienced accountant on December 31, 2018:
The inventory was understated by $17,000.
Accrued December 2018 salaries of $1,800 were not recognized.
Unearned revenue of $2,300 was recorded in the 2018 revenue.
In addition, it was determined that $20,000 of A/P were long-term, and that a $500 dividend was reported as dividend expense and deducted in calculating NI.
Required:
a.
Calculate WK, current ratio, and debt-to-equity ratio [TL/TE] for Pedro Ltd., based on the original B/S information provided above. (3 marks)
b.
Calculate the corrected NI for 2018 (9 marks)
c.
Calculate the corrected R/E for December 31, 2018 (5 marks)
d.
a corrected B/S at December 31, 2018(8 marks)
e.
Using the corrected data, recalculate the rations in part (a). Explain the resulting differences.
(5 marks)
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