Your firm has been engaged to examine the financial statements of Novak Corporation for the year 2025. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2020. The client provides you with the following information. Novak Corporation Balance Sheet December 31, 2025 Assets Liabilities Current assets $1,875,000 Current liabilities $964,000 Other assets 5,302,160 Long-term liabilities 1,402,000 $7,177,160 Stockholders' equity 4,811,160 An analysis of current assets discloses the following. $7,177,160 Cash (restricted in the amount of $306,000 for plant expansion) $576,000 Investments in land 187,000 Accounts receivable less allowance of $30,000 475,000 Inventories (LIFO flow assumption) 637,000 $1,875,000 Other assets include: Prepaid expenses $63,000 Plant and equipment less accumulated depreciation of $1,440,000 4,203,000 Cash surrender value of life insurance policy 85,000 Unamortized bond discount 92,160 Notes receivable (short-term) Goodwill Land 162,000 254,000 443,000 $5,302,160 Current liabilities include: Accounts payable $512,000 Notes payable (due 2028) 159,000 Estimated income taxes payable 146,000 Premium on common stock 147,000 $964,000 Long-term liabilities include: Unearned revenue Dividends payable (cash) 8% bonds payable (due May 1, 2030) $484,000 198,000 720,000 $1,402,000 Stockholders' equity includes: Retained earnings $2,961,160 Common stock, par value $10;authorized 200,000 shares, 185,000 shares issued 1,850,000 $4,811,160 The supplementary information below is also provided. 1. 2. On May 1, 2025, the corporation issued at 87.20, $720,000 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. The bookkeeper made the following mistakes. a. b. C. In 2023, the ending inventory was overstated by $182,000. The ending inventories for 2024 and 2025 were correctly computed. In 2025, accrued wages in the amount of $226,000 were omitted from the balance sheet, and these expenses were not charged on the income statement. In 2025, a gain of $174,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings. 3. 4. A major competitor has introduced a line of products that will compete directly with Novak'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 Novak's line. The competitor announced its new line on January 14, 2026. Novak 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 fixed costs. You learned on January 28, 2026, prior to completion of the audit, of heavy damage because of a recent fire to one of Novak'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 Novak 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 earnings. (List Current Assets in order of liquidity.) $ NOVAK CORPORATION Balance Sheet Assets $ $ Liabilities and Stockholders' Equity > > $ $ $ $ $