Using Excel, prepare corrected balance sheet for Hydromaint Inc. Please put all the disclosures note for the financial statements. Please use attachments to prepare balance sheet with disclosures.

Answers should match below check figures

Check Figures are

Balance Sheet Cash $2,170 NOL Tax benefit $2,299 Note: Management believes that only 65% of the NOL benefit will be realized in future years. Current Assets $85,860 Total Assets $163,860 Total Equity $130,510

REQUIREMENT 1 It was Tuesday, January 6, 20X2 and Tom Lockhart had just gotten back from a session of racquetball and lunch. Tom always enjoyed the week after New Year's. The weather was crisp, and his professional practice was underway in earnest. Tom was a partner in the CPA firm of Coe & Lane, a regional accounting firm headquartered in St. Louis. His messages included a call from Nick Riley at Hydromaint, Inc. He and Nick were members of a local athletic club and Nick had just beaten him in two consecutive games. Tom was fairly certain that Nick had called to gloat a little. They had known each other about five years and enjoyed a healthy rivalry in both tennis and racquetball. Coe & Lane had a professional relationship with Nick and his family. It began in late 20X0 when Nick's father passed away and the firm helped settle the estate. Nick and his three sisters each received about $100,000 as their settlement. Nick was a mechanical engineer and was head of maintenance at a fair-sized chemical plant. Ray Ballard, a close friend of Nick's, managed the City Water District. Both men were recognized experts in hydraulics. For several years, Nick and Ray had discussed the market potential of providing hydraulic maintenance services on a contract basis to water districts, chemical plants, refineries, and pipeline pumping stations throughout the Midwest. Both men were convinced that it was more efficient for these enterprises to outsource maintenance services. With Nick's inherited wealth, the possibility of such a business arrangement became more real. The results of a market study proved to be quite promising, and preliminary negotiations resulted in six maintenance contracts. So in early 20X1, Nick and Ray decided to incorporate a new company in the State of Missouri, Hydromaint, Inc. The six new contracts called for monthly fee payments that were billed and collected after the work was completed. The fees for all six contracts were fixed and covered all maintenance work, even though the amount of work performed might vary from period to period. Hydromaint required its new clients to purchase the material used in its maintenance services directly from third-party suppliers, who provided product warranties in some cases. Since one of the new contracts was with Nick's former employer, he was able to hire most of his former staff, and after extensive training, Hydromaint initiated operations with a competitive work force. Initial financing for the company came from friends and family, including two of Nick's sisters and Ray's father. Coe & Lane helped Hydromaint set up an accounting system and hired its accountant, Jerry Loos. Tom returned Nick's call, and while Nick did gloat about his racquetball triumphs, he also had something else in mind. More contracts were about to materialize, but there was a need for additional financing to support equipment purchases. Hydromaint currently was operating with two rented crew trucks. These trucks were rigged with tooling, but not to the specifications necessary for efficient long-term operations. Additionally, another truck would be required to handle the additional contracts. So, Hydromaint decided to buy three trucks with customized rigging. Other modifications would be added later in the company's shop. To finance the truck purchases, Hydromaint decided to approach Midwest National Bank about securing a loan commitment. However, the bank required the company to provide certain financial information before making a loan decision. Jerry Loos had prepared financial statements as of December 31, 20X1, the end of the company's fiscal year. However, the bank wanted a CPA firm to provide assurances on the integrity of the financial statements in the form of a review. Tom said that Coe & Lane would be glad to do the work and could begin the next afternoon. Tom also got permission to contact Hydromaint's loan officer, Roger Sontag, to be sure he knew what the bank meant by the term "review." When Tom called Roger Sontag at Midwest National Bank, Roger assured him that the bank did not want anything as comprehensive as an audit, but something more than a mere compilation. He wanted a review with a related report prepared by Coe & Lane. Roger also stated that the bank wanted earnings per share (EPS) figures and, if appropriate, line of business or segment information for analytical purposes. Tom consulted the AICPA Statement on Standards for Accounting and Review Services (SSARS) and found the following definition of a review of financial statements: Performing inquiry and analytical procedures that provide the accountant with a reasonable basis for expressing limited assurance that there are no material modifications that should be made in the statements in order for them to be in conformity with generally accepted accounting principles. Tom was able to wrest your services away from another engagement to perform Hydromaint's review. You and Tom were scheduled to meet with Nick Riley, Jerry Loos, and Roger Sontag for lunch the next day. You always had enjoyed such luncheon meetings; they were with interesting people and always at quality places. Sure enough, the restaurant was top notch and the food was great. Nick emphasized how important the loan was to adding new contracts and getting the right equipment. With only six contracts, Hydromaint relied heavily on each customer, and losing even one could be devastating. He had a new contract pending, and he was being pressured to close the deal within a couple of weeks. Tom responded that the review could be completed by Tuesday, January 13, 20X2. Roger Sontag assured Nick that with reviewed financial statements in hand, his loan committee would have a response by the following Friday, January 16. Jerry Loos indicated that the financial statements were ready and that he was prepared to provide detailed information on any of the statements' elements. All agreed that you would accompany Jerry to Hydromaint after lunch and make an initial examination of the financial statements. Based on this preliminary investigation, you would prepare a to-do list for Jerry setting forth your additional information needs. Jerry would have at least some of this ready for you the next day. During your initial visit, Jerry answered a number of your questions. He assured you that the company's bank account had been reconciled with outstanding checks accounting for the only reconciling items. He also assured you that he was pretty sure the accruals through December 31, 20X1 had been booked and also shared that he was relieved that payday for crew and shop wages came yesterday after just receiving a customer payment on Monday. He informed you that if he had known he would be in such a cash crunch he may not have paid the insurance premium up front to get the discount he got back in February. Shop equipment was being depreciated over seven years with no salvage value, and depreciation was computed to the nearest full year. Licensing costs were being amortized over the useful life of the license agreement. Jerry noted that income taxes were accrued at the statutory rate of 30 percent. Jerry asked that you prepare the correct income tax entry if adjusting entries were required as a result of your review. REQUIRED: The journal and financial statements as prepared by Jerry Loos follow. Review these data, and prepare a list of thoughtful questions to obtain any additional information needed from the client that will allow you to provide assurance that the financial statements are in accordance with GAAP. Be as specific and respectful as possible, and where possible, provide a reference that supports your request. Also, provide a written reason that explains why you are asking each question and be sure that your questions are worded such that you will obtain the needed information from the client. REQUIREMENT 2 You returned to Hydromaint about mid-afternoon on Wednesday, January 7. Jerry had prepared written responses to all of your questions. After getting clarification on a couple of points, you are ready to get to work to complete the necessary adjusting and correcting entries. REQUIRED: Use the information provided below to create all adjusting and correcting journal entries needed to assure that Hydromaint's financial statements will be in accordance with U.S. GAAP. Documentation for each journal entry should include a detailed explanation and all necessary calculations. YOUR QUESTIONS AND CLIENT RESPONSES 1. Are all receivables collectible? Do you require an allowance for bad debts? Collection of the receivables will be no problem. We know all the customers well and we have reviewed each of the accounts at year-end for any problems. Everyone has paid on time thus far. 2. Are the shop supplies consumed as purchased? Are any supplies still unused at year-end? There is usually a quantity of shop supplies on hand. Also, the quantities are fairly stable over time. We took an inventory on January 2. I computed the cost of the items from the latest invoices and derived an amount of $5,900. 3. What is the composition of start-up costs? Why have you capitalized these? During 20X1, we spent $43,000 on training our maintenance crew and shop employees in anticipation of new contracts. It was way more expensive than we bargained for and since we will benefit from this for years to come, we are spreading it over a total of five years. 4. What is included in the cost of the license agreement? On 1/2/20X1, Nick and Ray signed a fifteen-year licensing agreement that allows them to use a specialized diagnostic instrument to identify system pressure variances. This tool allows them to quickly locate leaks until they can develop their own equipment. To obtain the license, Nick and Ray paid a total of $35,000 prior to incorporation (reimbursed in stock). Additionally, on 1/15/20X1, a final license payment of $10,000 was made by the company after incorporation. 5. You mentioned that payday for crew wages through year end was this week. Did you accrue the wages related to that pay period as of year end? Can you tell us how much was paid this week for December wages? Also, when is payday for the salaried employees and officers? I recorded the wages paid during the year and the payments made this week will be recorded in my 20x2 financials, of course. The wages that were paid this week were for the two weeks ending January 2 and included some overtime for the last weekend in December due to below freezing temperatures. The total paid this week for the wages earned in December was $10,550 for the crew workers and $3,900 for the shop workers. I can show you the time cards if needed. Salaried employees and officers get paid on the last day of the month. 6. Can you provide a listing of the maintenance contracts and their terms? Since you only have six contracts, we think you may have customers who meet the definition of a \"major customer\" for financial statement note disclosure purposes. 7. What are the terms of your lease or rental agreements? We need to determine whether any of them should be capitalized. Will you own the assets when the lease is over? What is the useful life and fair market value of the assets? On 1/1/20X1 we executed a five-year lease on our building; the rent is $39,000 per year payable on January 1 annually and is allocated $32,500 to the shop and $6,500 to the office. The cost of a similar building with office and shop is around $480,000. The useful life of the building is 20 years. Crew trucks are rented at $100/day as needed, with no fixed term. On 1/1/20X1 we also signed a five-year lease on office furniture and equipment for $5,000 per year payable on January 1 annually. The useful lives of these items approximate 10 years. The cost to buy this furniture and equipment would be about $35,000. If we had bought the furniture instead of leasing, we could have borrowed the money from the vendor at 7%. None of the above leases required a deposit and we have no desire to own any of the assets. 8. How many shares of stock were authorized by the Company? How many shares have been issued? To whom were all of the shares issued and when were they issued? Were the proceeds all in cash? Authorized: 25,000 shares, $10 par. Issued: 14,000 shares, all at par. 1/1/X1 - Nick Riley; 3,000 shares Cash, $5,000 For licensing costs, $25,000 1/1/X1 - Ray Ballard; 3,000 shares For licensing costs, $10,000 Cash, $20,000 2/1/X1 - Jan Compton; Nick's sister, 2,000 shares Cash, $20,000 3/1/X1 - Jim Ballard; Ray's father, 4,000 shares Cash, $40,000 4/1/X1 - Mary Riley; Nick's sister, 2,000 shares Cash, $20,000 9. You mentioned that you paid insurance premiums ahead of time to get a discount. How far ahead did you pay? We think you may be able to capitalize some prepaid insurance if you paid for more than eleven months this year. I paid for two-year premiums on February 1, 20x1, that cover us through January 31, 20x3. 10. Did you calculate the earnings per share (EPS)? I hadn't thought about EPS. Is it required by the bank? If so, could you please compute the number for us? 11. Did you prepare a statement of cash flows and a statement of changes in owners' equity for us? I didn't know those were required. I really do not have time to get that done this week. Could you prepare those for us this time? 12. You mentioned that you are expecting to obtain new customer contracts. Do you have any signed agreements yet? Also, do you expect all your present customers to continue with you? This will be important information since it looks like you may have a net operating loss this year. If you do have a loss, you will be able to carry that loss forward to future profitable years. We need some basis for forecasting whether you will be able to use that tax benefit or not, and if so, to what extent. Of courseall of our customers are very satisfied with our service and have been recommending us to other companies in the industry. We have active negotiations going on with two new customers who are both planning to pay us in advance for twelve months of service. We are very excited about that--is that helpful? Why does this matter for my 20x1 financials and what do you mean we might have a loss this year? 13. Have there been any events that occurred thus far in 20X2 that would be important to disclose on your financial statements? We are required to disclose any material subsequent events. We have entered into a long term installment note to purchase three trucks to do the maintenance work so that we no longer have to rent trucks. Tom Lockhart from C&L helped us with that