Swap CollateralHydromaint Inc was created in 20x1 Your firm has been working with them since their inception by providing review services each year, as required by their bank These services have included reviewing the journal entries prepared by the client each year, and making inquiries to the client to understand the methodologies and estimates used Your firm then proposes adjusting entries to bring the financial statements into compliance with GAAP, and prepared the financial statement footnotes When Hydromaint was created they were exclusively providing hydraulic maintenance services As they have grown they began to carry parts in inventory to expedite their maintenance and repair activities (Previously they would order parts only when needed ) In 20x4 Hydromaint acquired a 20 percent ownership in PVCO, a supplier of high quality pumps and valves At that time one of the Hydromaint founders was placed on the board of PVCO You have been provided the journal entries for 20x5, and the income statement and balance sheet that was prepared by the client (Some of the entries are aggregated for simplicity ) Review the financial information provided, and prepare adjusting entries and financial statements Trial Adjusted 12 31 X4 12 31 X5 12 31 X5 Acct No Account Title DR(CR) DR(CR) ref Dr ref Cr DR(CR) 101 Cash 248,490 92,406 92,406 105 Accounts Receivable 146,000 209,200 209,200 106 Accounts Receivable Prog Billings 108 Allowance for Bad Debt (30,000) (40,200) (40,200) 111 Equity Securities 25,075 46,400 46,400 121 Merchandise Inventory 116,790 166,490 166,490 122 Work In Progress 123 Manufacturing Costs Variable 124 Manufacturing Costs Fixed 125 Raw Materials 126 Construction Work In Progress 127 Construction WIP Progress Billings 129 Supplies on Hand 20,921 21,921 21,921 141 Deferred Income Tax Asset Current 48,278 48,278 48,278 142 NOL Tax Benefit 143 NOL Valuation Allowance 151 Land 105,000 105,000 161 Buildings 215,000 215,000 162 Buildings Accumulated Depreciation (10,750) (10,750) 171 Equipment 30,000 90,000 90,000 172 Equipment Accumulated Depreciation (24,000) (40,000) (40,000) 181 Vehicles 392,286 392,286 392,286 182 Vehicles Accumulated Depreciation (148,143) (196,972) (196,972) 191 Leased Assets 380,000 380,000 380,000 192 Leased Assets Accumulated Depreciation (38,000) (57,000) (57,000) 201 Equity Securities Long Term 368,474 368,474 202 Equity Securities Equity Interest 368,474 1,750,000 1,750,000 211 Licensing Costs, NET 6,000 212 Goodwill 215 Deferred Income Tax Asset Long Term 217 Start Up Costs 221 Deferred R D Costs 301 Accounts Payable Inventoriable Costs (16,790) (97,690) (97,690) 302 Accounts Payable Suppliers Other Costs (29,000) (38,000) (38,000) 303 Accounts Payable Equipment ACQ 311 Interest Payable (42,824) (35,557) (35,557) 312 Income Tax Payable (80,095) (97,142) (97,142) 321 Short Term Portion of Long Term Debt (69,363) (77,556) (77,556) 325 Deferred Income Tax Liability Current 331 Notes Payable 335 Unearned Revenue (124,000) (124,000) (124,000) 338 Accrued Pension Liability (42,276) (13,737) (13,737) 401 Long Term Debt Notes (147,684) (78,022) (78,022) 402 Long Term Debt Bonds 411 Net Pension Liability Long term (159,034) (139,155) (139,155) 415 Capital Leases Liability (325,332) (317,438) (317,438) 421 Deferred Income Tax Liability Long Term (16,913) (16,913) (16,913) 422 Estimated Liability Product Warranties 451 Capital Stock Common (120,000) (120,000) (120,000) 452 Paid in Capital Common 461 Capital Stock Preferred (700,000) (700,000) 462 Paid in Capital Preferred (875,000) (875,000) 471 OCI Market Gain ST Equity Securities 475 OCI Deferred Pension Cost Past Service Cost 159,034 139,155 139,155 476 OCI Deferred (Gain) Loss 491 Retained Earnings (268,622) (527,894) (527,894) 492 Retained Earnings Cash Dividends 92,000 92,000 493 Retained Earnings Stock Dividends 494 Retained Earnings Error Correction PY 495 Retained Earnings Cumulative Effect 501 Sales Revenue (135,000) (1,360,000) (1,360,000) 505 Service Revenue (2,300,000) (2,850,000) (2,850,000) 511 Construction Revenue 521 Cost of Goods Sold 100,000 850,000 850,000 522 Air Freight 80,400 80,400 523 Warehouse Rent 12,000 12,000 551 Service Costs Direct Crew Wages 897,000 1,148,550 1,148,550 552 Service Costs Direct Truck Rental 26,000 26,000 553 Service Costs Direct Fuel 39,000 47,000 47,000 554 Service Costs R and M 9,000 12,500 12,500 561 Service Costs Indirect Shop Wages 141,000 138,975 138,975 562 Service Costs Indirect Shop Utilities 37,500 40,833 40,833 563 Service Costs Indirect Shop Rent 564 Service Costs Indirect Supplies 53,000 60,000 60,000 565 Service Costs Crew Training 581 Costs of Construction Revenue Earned 601 Selling Admin Utilities 7,500 8,167 8,167 602 Selling Admin Building Rental 603 Selling Admin Medical Benefits 83,460 115,815 115,815 604 Selling Admin Pension Expense 224,700 331,461 331,461 605 Selling Admin Officers Salaries 115,000 140,000 140,000 606 Selling Admin Rent Equipment 5,000 8,000 8,000 607 Selling Admin Supplies 7,000 15,000 15,000 608 Selling Admin Other Salaries 98,000 116,000 116,000 609 Selling Admin Professional Fees 10,000 9,000 9,000 615 Selling Admin Other 18,000 31,000 31,000 631 Selling Admin Sales Sal Comm 142,400 142,400 632 Selling Admin Warehouse Wages 55,000 55,000 651 Selling Admin Bad Debts 62,000 35,000 35,000 701 Service Costs Direct Truck Depreciation 66,381 48,829 48,829 704 Service Costs Indirect Depreciation Shop Equip 6,000 16,000 16,000 706 Selling Admin Warehouse Depreciation 10,750 10,750 710 Amortization of Licensing Costs 6,000 6,000 6,000 712 Amortization of Capital Leases 19,000 19,000 19,000 713 Amortization of R D Costs 714 Amortization of Goodwill 751 Interest Expense 25,741 18,344 18,344 755 Interest Expense Capital Lease 34,111 33,410 33,410 801 Market (Loss) Recovery ST Equity Securities 13,125 (17,325) (17,325) 802 Recognized Gain Mkt Equity Securities (4,000) (4,000) 803 Investment Income Mkt Equity Securities ST (1,520) (1,800) (1,800) 804 Investment Income Mkt Equity Securities LT (39,000) (39,000) 805 Investment Income Equity Investments (6,474) (37,000) (37,000) 811 Net Unrealized Holding Gain 831 Income Tax Expense Current 106,204 220,107 220,107 832 Income Tax Expense Deferred 851 Extraordinary Items 860 Discontinued Operations Hydromaint, Inc Balance Sheet December 31, 20x5 Assets 20x5 20x4 Current Assets Cash $ 92,406 $ 248,490 Accounts Receivable (net) 169,000 116,000 Equity Securities 46,400 25,075 Merchandise Inventory 166,490 116,790 Supplies on Hand 21,921 20,921 Deferred Income Tax Asset Current 48,278 48,278 Total Current Assets 544,495 575,554 Property, Plant and Equipment Land 105,000 Buildings 215,000 Buildings Accumulated Depreciation 10,750 Equipment 90,000 30,000 Equipment Accumulated Depreciation 40,000 24,000 Vehicles 392,286 392,286 Vehicles Accumulated Depreciation 196,972 148,143 Leased Assets 380,000 380,000 Leased Assets Accumulated Depreciation 57,000 38,000 Total Property, Plant and Equipment 877,564 592,143 Other Assets Equity Securities Long Term 368,474 0 Equity Securities Equity Interest 1,750,000 368,474 Licensing Costs, NET 0 6,000 Total Other Assets 2,118,474 374,474 Total Assets 3,540,533 1,542,171 Liabilities and Equity Current Liabilities Accounts Payable Inventoriable Costs $97,690 $16,790 Accounts Payable Suppliers Other Costs 38,000 29,000 Interest Payable 35,557 42,824 Income Tax Payable 97,142 80,095 Short Term Portion of Long Term Debt 77,556 69,363 Unearned Revenue 124,000 124,000 Total Current Liabilities 469,945 362,072 Long Term Liabilities Accrued Pension Liability 13,737 42,276 Long Term Debt Notes 78,022 147,684 Capital Leases Liability 317,438 325,332 Net Pension Liability 139,155 159,034 Deferred Income Tax Liability Long Term 16,913 16,913 Total Long Term Liabilities 565,265 691,239 Total Liabilities 1,035,210 1,053,311 Owner's Equity Capital Stock Common 120,000 120,000 Capital Stock Preferred 700,000 0 Paid in Capital Preferred 875,000 0 OCI 139,155 159,034 Retained Earnings 949,478 527,894 Total Owner's Equity 2,505,323 488,860 Total Liabilities and Owner's Equity 3,540,533 1,542,17 Hydromaint, Inc Statement of Income and Retained Earnings For the Year Ending December 31, 20x5 20x5 20x4 Revenue Sales Revenue $1,360,000 $135,000 Service Revenue 2,850,000 2,300,000 Dividend Income 77,800 7,994 Total Revenue 4,287,800 2,442,994 Costs and Expenses Cost of Goods Sold 2,416,258 1,276,500 Selling and Administrative Expenses 1,006,843 630,660 Depreciation and Amortization 100,579 97,381 Investment (gain) loss (21,325) 13,125 Interest Expense 51,754 59,852 Total Costs and Expenses 3,554,109 2,077,518 Operating Income before Taxes 733,691 365,476 Income Tax Expense 220,107 106,204 Net Income 513,584 259,272 Retained Earnings, January 1 527,894 268,622 Less Dividends Declared (92000) Retained Earnings, December 31 $949,478 $527,894 1

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Swap CollateralHydromaint Inc. was created in 20x1. Your firm has been working with them since their inception by providing review services each year, as required

Swap CollateralHydromaint Inc. was created in 20x1. Your firm has been working with them since their inception by providing review services each year, as required by their bank. These services have included reviewing the journal entries prepared by the client each year, and making inquiries to the client to understand the methodologies and estimates used. Your firm then proposes adjusting entries to bring the financial statements into compliance with GAAP, and prepared the financial statement footnotes. When Hydromaint was created they were exclusively providing hydraulic maintenance services. As they have grown they began to carry parts in inventory to expedite their maintenance and repair activities. (Previously they would order parts only when needed.) In 20x4 Hydromaint acquired a 20 percent ownership in PVCO, a supplier of high quality pumps and valves. At that time one of the Hydromaint founders was placed on the board of PVCO. You have been provided the journal entries for 20x5, and the income statement and balance sheet that was prepared by the client. (Some of the entries are aggregated for simplicity.) Review the financial information provided, and prepare adjusting entries and financial statements.


			Trial					Adjusted
		12/31/X4	12/31/X5					12/31/X5
Acct No	Account Title	DR(CR)	DR(CR)	ref	Dr	ref	Cr	DR(CR)
101	Cash	248,490	92,406					92,406
105	Accounts Receivable	146,000	209,200					209,200
106	Accounts Receivable- Prog Billings							-
108	Allowance for Bad Debt	(30,000)	(40,200)					(40,200)
111	Equity Securities	25,075	46,400					46,400
121	Merchandise Inventory	116,790	166,490					166,490
122	Work In Progress							-
123	Manufacturing Costs- Variable							-
124	Manufacturing Costs- Fixed							-
125	Raw Materials							-
126	Construction Work In Progress							-
127	Construction WIP- Progress Billings							-
129	Supplies on Hand	20,921	21,921					21,921
141	Deferred Income Tax Asset - Current	48,278	48,278					48,278
142	NOL Tax Benefit							-
143	NOL Valuation Allowance							-
151	Land		105,000					105,000
161	Buildings		215,000					215,000
162	Buildings - Accumulated Depreciation		(10,750)					(10,750)
171	Equipment	30,000	90,000					90,000
172	Equipment- Accumulated Depreciation	(24,000)	(40,000)					(40,000)
181	Vehicles	392,286	392,286					392,286
182	Vehicles - Accumulated Depreciation	(148,143)	(196,972)					(196,972)
191	Leased Assets	380,000	380,000					380,000
192	Leased Assets- Accumulated Depreciation	(38,000)	(57,000)					(57,000)
201	Equity Securities - Long Term		368,474					368,474
202	Equity Securities - Equity Interest	368,474	1,750,000					1,750,000
211	Licensing Costs, NET	6,000	-					-
212	Goodwill							-
215	Deferred Income Tax Asset - Long Term							-
217	Start-Up Costs							-
221	Deferred R&D Costs							-
301	Accounts Payable- Inventoriable Costs	(16,790)	(97,690)					(97,690)
302	Accounts Payable- Suppliers - Other Costs	(29,000)	(38,000)					(38,000)
303	Accounts Payable- Equipment ACQ		-					-
311	Interest Payable	(42,824)	(35,557)					(35,557)
312	Income Tax Payable	(80,095)	(97,142)					(97,142)
321	Short-Term Portion of Long Term Debt	(69,363)	(77,556)					(77,556)
325	Deferred Income Tax Liability - Current							-
331	Notes Payable							-
335	Unearned Revenue	(124,000)	(124,000)					(124,000)
338	Accrued Pension Liability	(42,276)	(13,737)					(13,737)
401	Long-Term Debt Notes	(147,684)	(78,022)					(78,022)
402	Long-Term Debt Bonds							-
411	Net Pension Liability - Long-term	(159,034)	(139,155)					(139,155)
415	Capital Leases- Liability	(325,332)	(317,438)					(317,438)
421	Deferred Income Tax Liability - Long Term	(16,913)	(16,913)					(16,913)
422	Estimated Liability- Product Warranties							-
451	Capital Stock- Common	(120,000)	(120,000)					(120,000)
452	Paid-in Capital Common							-
461	Capital Stock- Preferred		(700,000)					(700,000)
462	Paid-in Capital Preferred		(875,000)					(875,000)
471	OCI- Market Gain- ST Equity Securities							-
475	OCI- Deferred Pension Cost - Past Service Cost	159,034	139,155					139,155
476	OCI-Deferred (Gain) Loss							-
491	Retained Earnings	(268,622)	(527,894)					(527,894)
492	Retained Earnings- Cash Dividends		92,000					92,000
493	Retained Earnings- Stock Dividends							-
494	Retained Earnings- Error Correction PY							-
495	Retained Earnings- Cumulative Effect							-
501	Sales Revenue	(135,000)	(1,360,000)					(1,360,000)
505	Service Revenue	(2,300,000)	(2,850,000)					(2,850,000)
511	Construction Revenue							-
521	Cost of Goods Sold	100,000	850,000					850,000
522	Air Freight		80,400					80,400
523	Warehouse Rent		12,000					12,000
551	Service Costs- Direct- Crew Wages	897,000	1,148,550					1,148,550
552	Service Costs- Direct- Truck Rental	-	26,000					26,000
553	Service Costs- Direct- Fuel	39,000	47,000					47,000
554	Service Costs- R and M	9,000	12,500					12,500
561	Service Costs- Indirect Shop Wages	141,000	138,975					138,975
562	Service Costs- Indirect Shop Utilities	37,500	40,833					40,833
563	Service Costs- Indirect Shop Rent	-	-					-
564	Service Costs- Indirect Supplies	53,000	60,000					60,000
565	Service Costs- Crew Training	-	-					-
581	Costs of Construction Revenue Earned	-	-					-
601	Selling & Admin- Utilities	7,500	8,167					8,167
602	Selling & Admin- Building Rental		-					-
603	Selling & Admin- Medical Benefits	83,460	115,815					115,815
604	Selling & Admin- Pension Expense	224,700	331,461					331,461
605	Selling & Admin- Officers Salaries	115,000	140,000					140,000
606	Selling & Admin- Rent Equipment	5,000	8,000					8,000
607	Selling & Admin- Supplies	7,000	15,000					15,000
608	Selling & Admin- Other Salaries	98,000	116,000					116,000
609	Selling & Admin- Professional Fees	10,000	9,000					9,000
615	Selling & Admin- Other	18,000	31,000					31,000
631	Selling & Admin- Sales Sal & Comm		142,400					142,400
632	Selling & Admin- Warehouse Wages		55,000					55,000
651	Selling & Admin- Bad Debts	62,000	35,000					35,000
701	Service Costs- Direct- Truck Depreciation	66,381	48,829					48,829
704	Service Costs Indirect Depreciation Shop Equip	6,000	16,000					16,000
706	Selling & Admin- Warehouse Depreciation	-	10,750					10,750
710	Amortization of Licensing Costs	6,000	6,000					6,000
712	Amortization of Capital Leases	19,000	19,000					19,000
713	Amortization of R&D Costs							-
714	Amortization of Goodwill							-
751	Interest Expense	25,741	18,344					18,344
755	Interest Expense Capital Lease	34,111	33,410					33,410
801	Market (Loss) Recovery- ST Equity Securities	13,125	(17,325)					(17,325)
802	Recognized Gain- Mkt Equity Securities		(4,000)					(4,000)
803	Investment Income- Mkt Equity Securities ST	(1,520)	(1,800)					(1,800)
804	Investment Income- Mkt Equity Securities LT		(39,000)					(39,000)
805	Investment Income Equity Investments	(6,474)	(37,000)					(37,000)
811	Net Unrealized Holding Gain							-
831	Income Tax Expense - Current	106,204	220,107					220,107
832	Income Tax Expense - Deferred
851	Extraordinary Items							-
860	Discontinued Operations							-
								-
		-	-		-		-	-

Hydromaint, Inc.

Balance Sheet

December 31, 20x5

Assets

20x5

20x4

Current Assets

Cash

$ 92,406

$ 248,490

Accounts Receivable (net)

169,000

116,000

Equity Securities

46,400

25,075

Merchandise Inventory

166,490

116,790

Supplies on Hand

21,921

20,921

Deferred Income Tax Asset - Current

48,278

Total Current Assets

544,495

575,554

Property, Plant and Equipment

Land

105,000

Buildings

215,000

Buildings - Accumulated Depreciation

-10,750

Equipment

90,000

30,000

Equipment- Accumulated Depreciation

-40,000

-24,000

Vehicles

392,286

Vehicles - Accumulated Depreciation

-196,972

-148,143

Leased Assets

380,000

Leased Assets- Accumulated Depreciation

-57,000

-38,000

Total Property, Plant and Equipment

877,564

592,143

Other Assets

Equity Securities - Long Term

368,474

Equity Securities - Equity Interest

1,750,000

368,474

Licensing Costs, NET

6,000

Total Other Assets

2,118,474

374,474

Total Assets

3,540,533

1,542,171

Liabilities and Equity

Current Liabilities

Accounts Payable- Inventoriable Costs

$97,690

$16,790

Accounts Payable- Suppliers - Other Costs

38,000

29,000

Interest Payable

35,557

42,824

Income Tax Payable

97,142

80,095

Short-Term Portion of Long Term Debt

77,556

69,363

Unearned Revenue

124,000

Total Current Liabilities

469,945

362,072

Long Term Liabilities

Accrued Pension Liability

13,737

42,276

Long-Term Debt Notes

78,022

147,684

Capital Leases- Liability

317,438

325,332

Net Pension Liability

139,155

159,034

Deferred Income Tax Liability - Long Term

16,913

Total Long Term Liabilities

565,265

691,239

Total Liabilities

1,035,210

1,053,311

Owner's Equity

Capital Stock- Common

120,000

Capital Stock- Preferred

700,000

Paid-in Capital Preferred

875,000

OCI

-139,155

-159,034

Retained Earnings

949,478

527,894

Total Owner's Equity

2,505,323

488,860

Total Liabilities and Owner's Equity

3,540,533

1,542,17

	Hydromaint, Inc.
	Statement of Income and Retained Earnings
	For the Year Ending December 31, 20x5

		20x5	20x4
Revenue
	Sales Revenue	$1,360,000	$135,000
	Service Revenue	2,850,000	2,300,000
	Dividend Income	77,800	7,994
	Total Revenue	4,287,800	2,442,994

Costs and Expenses
	Cost of Goods Sold	2,416,258	1,276,500
	Selling and Administrative Expenses	1,006,843	630,660
	Depreciation and Amortization	100,579	97,381
	Investment (gain) loss	(21,325)	13,125
	Interest Expense	51,754	59,852
	Total Costs and Expenses	3,554,109	2,077,518

Operating Income before Taxes		733,691	365,476

Income Tax Expense		220,107	106,204

Net Income		513,584	259,272

Retained Earnings, January 1		527,894	268,622
	Less Dividends Declared	(92000)
Retained Earnings, December 31		$949,478	$527,894