You recently joined the internal auditing department of Kaitlyn Sportswear Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.

Kaitlyn Sportswear Corporation

Balance Sheet

At December 31, 2016

Assets

Current assets:

Cash $ 220,000

Accounts receivable, net 340,000

Note receivable 80,000

Inventories 600,000

Prepaid expenses 40,000

Total current assets 1,280,000

Other assets: Land $ 500,000

Buildings, net 2,200,000

Equipment, net 400,000

Investments 50,000

Patent 60,000

Total other assets 3,156,000

Total assets $4,346,000

Liabilities and Shareholders Equity

Current liabilities:

Accounts payable $ 165,000

Salaries payable 75,000

Interest payable 45,000

Total current liabilities 285,000

Long-term liabilities:

Note payable $300,000

Bonds payable 500,000

Deferred revenue 80,000

Total long-term liabilities 880,000

Shareholders equity:

Common stock $2,000,000

Retained earnings 1,181,000

Total shareholders equity 3,181,000

Total liabilities and

shareholders equity $4,346,000

In the course of your examination you uncover the following information pertaining to the balance sheet:

1. The land and buildings represent the corporate headquarters and manufacturing facilities.

2. The note receivable is due in 2018. The balance of $80,000 includes $5,000 of accrued interest. The next interest payment is due in July 2017.

3. The note payable is due in installments of $50,000 per year. Interest on both the notes and bonds is payable annually.

4. The company's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.

5. Deferred revenue will be earned ratably (equally) over the next two years.

Required:

Identify and explain the deficiencies in the statement prepared by the company's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.