Question #1.

(30 marks)

The summary financial statements of Pedro Ltd on December 31, 2018, are as follows:

Cash $ 5,000

A/R 39,000

Inventory 79,000

PPE, net 125,000

Total $248,000

A/P $ 75,000

LT-debt 62,000

C/S 60,000

R/E 51,000

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.

The NI reported on the books for 2018 was $53,000.

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.

Prepare a corrected B/S at December 31, 2018 (8 marks)

e.

Using the corrected data, recalculate the ratios in part (a). Explain the resulting differences.

(5 marks)