Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your firm has been engaged to examine the financial statements of Blue Corporation for the year 2020. The bookkeeper who maintains the financial records has

image text in transcribedimage text in transcribedimage text in transcribedimage text in transcribed

Your firm has been engaged to examine the financial statements of Blue 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. Blue Corporation Balance Sheet December 31, 2020 Assets Liabilities Current assets $1,863,000 Current liabilities $969,000 Other assets 5,165,160 Long-term liabilities 1,408,000 Stockholders' equity 4,651,160 $7,028,160 $7,028,160 An analysis of current assets discloses the following. Cash (restricted in the amount of $305,000 for plant expansion) Investments in land Accounts receivable less allowance of $29,000 Inventories (LIFO flow assumption) $562,000 188,000 481,000 632,000 $1,863,000 Other assets include: Prepaid expenses Plant and equipment less accumulated depreciation of $1,435,000 Cash surrender value of life insurance policy Unamortized bond discount Notes receivable (short-term) Goodwill Land $64,000 4,117,000 84,000 38,160 163,000 253,000 446,000 $5,165,160 Current liabilities include: Accounts payable Notes payable (due 2023) Estimated income taxes payable Premium on common stock $518,000 155,000 148,000 148,000 $969,000 Long-term liabilities include: Unearned revenue Dividends payable (cash) 8% bonds payable (due May 1, 2025) $489,000 199,000 720,000 $1,408,000 Stockholders' equity includes: Retained earnings Common stock, par value $10; authorized 200,000 shares, 182,000 shares issued $2,831,160 1,820,000 $4,651,160 The supplementary information below is also provided. 1. 2. On May 1, 2020, the corporation issued at 94.70, $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. In 2018, the ending inventory was overstated by $184,000. The ending inventories for 2019 and 2020 were correctly computed. b. 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. C. In 2020, a gain of $177,000 (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 Blue'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 Blue's line. The competitor announced its new line on January 14, 2021. Blue 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, 2021, prior to completion of the audit, of heavy damage because of a recent fire to one of Blue's two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. 4. Analyze the above information to prepare a corrected balance sheet for Blue 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.) BLUE CORPORATION Balance Sheet Assets Liabilities and Stockholders' Equity

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Principles

Authors: Nformi Eugene Tawe

1st Edition

3330651032, 978-3330651036

More Books

Students also viewed these Accounting questions

Question

Graph the first-octant portion of each plane. x + 2y + 6z = 6

Answered: 1 week ago

Question

Stages of a Relationship?

Answered: 1 week ago