The controller of the Halpern Company prepared the following income statement and balance sheet at the end of the first year of the company€™s existence:
Income Statement
Sales revenue ...... $40,000
Cost of sales .... (20,000)
Operating expenses . (8,000)
Net income .... $12,000

Investigation shows that R&D costs include, among others, half the year€™s operating costs because €œthe company is not yet operating at capacity.€ In addition R&D costs include $5,000 of materials that were wasted during early production because €œour employees made some unnecessary mistakes.€

Required
1. Prepare the financial statements according to generally accepted accounting principles.
2. Compute the company€™s return on assets (net income divided by average total assets, as we discussed in Chapter 6.) under both the original and revised financialstatements.

Transcribed Image Text:

Balance Sheet Cash Inventory R&D costs $ 5,000 40,000 50,000 Property, plant, and equipment (net) 20.000 Retned earnings 12,000 $107,000 33,000 Accounts payable 24,000 Notes payable 30,000 Common stock $107,000