THE CRIMSON PRESS CURRICULUM CENTER

THE CRIMSON GROUP, INC.

Oceanside Inn

Oceanside Inn began operating on January 1, 2013. On December 31, 2014, it reached the end of its second fiscal year. With a good reputation, a competent staff, and fairly good occupancy, Oceanside had done well financially during both years. Innkeepers Bob Holmes and George Nichols, who managed the inn, were completely dedicated to providing the best service possible to their guests, but they were not the least bit interested in keeping accurate financial records.

Seeing a low cash balance in the check book, Holmes and Nichols asked their local bank for a loan. The bank, in turn, requested Oceanside's financial statements. The statements were presented in the format shown in Exhibit 1. Upon viewing the statements, the bank found them to be much too general. It insisted on additional information before a loan could even be considered - information dealing with depreciation, accruals, inventory counts, and other similar matters.

Holmes and Nichols were amazed. Thev had not anticipated any problems regarding their loan request. After feverishly reviewing their records and supporting statements (with some expert as-sistance), they uncovered the following information:

The inventory of supplies should have been $3,000 instead of the $4,000 shown on December 31,2014.

The "Other expenses" account included $3.000 of insurance premiums that had been paid during the year. However, $2,000 of this amount was for insurance premiums that had been paid, in advance, for coverage during 2015 and 2016.

The land and building had been purchased in early January 2013 at a cost of $60,000. The building had an estimated useful life of 20 years. Its residual value was estimated to be $8,000.

During December, employees had earned, but had not yet been paid as of December 31, 2014, salaries totaling $4,000. These had not been included in the $40,000 shown in Exhibit 1.

The $110,000 revenue shown in Exhibit 1 included $4,000 in cash deposits that customers had made for reservations that would be used in 2015.

A real estate agent had told Holmes and Nichols that a client of hers had made an offer of $100,000 on December 29, 2014 to purchase the inn's building and land. The client had the necessary funds in the bank.

Assignment

Using the information above, prepare a corrected set of financial statements

*income statement, journal entry, t account, balance sheet

OCEANSIDE INN Exhibit 1. Financial Statements for 2014 Balance Sheet As of December 31,2014