The balance sheet of Confucius Book Shop at April 30, 2014, is as follows:

Chennai Cain, the owner of the book shop, admits that he is not an accountant. In fact, he couldn't get the balance sheet to balance without "plugging" the numbers (making up numbers to give the desired result). He gives you the following additional information:
1. A professional real estate appraiser estimated the value of the land at $50,000. The actual cost of the land was $36,000.
2. Accounts receivable includes amounts due from customers in China for 35,000 Yuan, which is about $5,000 Canadian. Chennai didn't know how to convert the currency for reporting purposes so he added the 35,000 Yuan to the $2,000 due from Canadian customers. He thought it more important to know how much he was owed by each customer in the currency they would likely pay him with anyway. Chennai also believes that Accounts Receivable is a liability. He sees it as bad for the business that he doesn't have the cash from his customers yet.
3. Chennai reasons that equipment is a liability because it will cost him money in the future to maintain these items.
4. Chennai reasons that the note payable must be an asset because getting the loan was good for the business. If he had not obtained the loan, he would not have been able to purchase the land and buildings.
5. Chennai believes that his capital account is also an asset. He has invested in the business, and investments are assets; therefore his capital account is an asset.
6. The book shop owns 650 books that are for sale. The books cost $15,000. Chennai knows that most book stores call their books "merchandise inventory," but he doesn't know if this should be reported on the balance sheet.
Instructions
(a) Identify any corrections that should be made to the balance sheet, and explain why by referring to the appropriate accounting concept.
(b) Prepare a corrected balance sheet for Confucius Book Shop at April 30. (Hint: The capital account may need to be adjusted in order to balance.)
TAKING IT FURTHER Explain to Chennai why all transactions affect at least two financial statement items.

Transcribed Image Text:

CONFUCIUS BOOK SHOP Balance Sheet April 30, 2014 Liabilities and Owner's Equity Accounts payable Accounts receivable Equipment Supplies "Plug Assets Building C. Cai, capital Cash Land Notes payable $110,000 85,000 10,000 50,000 120,000 $375,000 $ 15,000 37,000 58,000 1,000 264,000 $375,000