Your firm has been engaged to examine the financial statements of Headland Corporation for the year 2020. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2015. The client provides you with the information Headland Corporation Balance Sheet December 31, 2020 Assets Liabilities Current assets $1,868,000 Current liabilities $955,000 Other assets 5,096,250 Long-term liabilities 1,439,000 Stockholders' equity 4,570,250 $6.964.250 $6,964,250 An analysis of current assets discloses the following Cash (restricted in the amount of $302,000 for plant expansion) $570,000 Investments in land 187,000 Accounts receivable less allowance of $30,000 474,000 Inventories (LIFO flow assumption) 637,000 Other assets include: Prepaid expenses Plant and equipment less accumulated depreciation of $1,420,000 Cash surrender value of life insurance policy Unamortized bond discount Notes receivable (short-term) Goodwill Land $1,868,000 $62,000 4,068,000 84,000 23,250 162,000 250,000 447,000 $5,096,250 Current liabilities include: Accounts payable Notes payable (due 2023) Estimated income taxes payable Premium on common stock Long-term liabilities include: Unearned revenue Dividends payable (cash) 8% bonds payable (due May 1, 2025) $511,000 155,000 142,000 147,000 $955,000 $487,000 202,000 750,000 $1,439,000 Stockholders equity includes: Retained earnings $2,740,250 Common stock, par value $10, authorized 200,000 shares, 183.000 shares issued 1,830,000 $4,570,250 The supplementary information below is also provided. 1 On May 1, 2020, the corporation issued at 96.90, $750,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization 2. The bookkeeper made the following mistakes. 3. 4. a In 2018, the ending inventory was overstated by $187,000. The ending inventories for 2019 and 2020 were correctly b. computed In 2020, accrued wages in the amount of $225,000 were omitted from the balance sheet, and these expenses were not charged on the income statement. In 2020, a gain of $172,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings A major competitor has introduced a line of products that will compete directly with Headland's primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor's line will be of comparable quality but priced 50% below Headland's line. The competitor announced its new line on January 14, 2021. Headland indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of foxed costs. You learned on January 28, 2021, prior to completion of the audit, of heavy damage because of a recent fire to one of Headland's two plants: the loss will not be reimbursed by insurance. The newspapers described the event in detail Analyze the above information to prepare a corrected balance sheet for Headland in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained eamings (List Current Assets in onder of liquidity) HEADLAND CORPORATION Balance Sheet < < < Assets > > > Liabilities and Stockholders' Equity < > < > eTextbook and Media Save for Later Attempts: 0 of 3used Submit