Up North Company recently hired a new accountant whose first task was to prepare the financial statements for the year ended December 31, 2014. The following is what she produced:

The owner of the company, James Prideaux, is confused by the statements and has asked you for your help. He doesn't understand how, if his owner's capital account was $90,000 at December 31, 2013, owner's equity is now only $29,615. The accountant tells you that $29,615 must be correct because the balance sheet is balanced. The accountant also tells you that she didn't prepare a statement of owner's equity because it is an optional statement.
You are relieved to find out that, even though there are errors in the statements, the amounts used from the accounts in the general ledger are the correct amounts.
Instructions
Prepare the correct multiple-step income statement, statement of owner's equity, and classifi ed balance sheet. You determine that $6,000 of the loan payable on the equipment must be paid during 2015.
Taking It Further
Why do we not include both the beginning and the ending merchandise inventory amounts on the balance sheet?

Transcribed Image Text:

UP NORTH COMPANY Income Statement December 31, 2014 Sales Less: Unearned revenue $474,000 6,600 4,175 Purchase discounts 10,775 463,225 Total revenue Cost of goods sold Purchases Less: Purchase returns and allowances Net purchases Add: Sales returns and allowances Cost of goods available for sale Add: Freight out $278,400 4,800 283,200 9,000 292,200 11,400 Cost of selling merchandise 303,600 159,625 Gross profit margin Operating expenses Freight in Insurance expense Interest expense Rentexpn Salaries expense $5,400 12,600 3,000 21,600 50,400 93,000 Total operating expenses Profit margin Other revenues 66,625 Interest revenue $1,800 4,200 Investment by owner 6,000 Other expenses Depreciation expense Drawings by owner 8,400 57,600 (60,000) $6,625 66,000 Profit from operations UP NORTH COMPANY Balance Sheet Year Ended December 31, 2014 Assets Cash Accounts receivable Merchandise inventory, January 1,2014 Merchandise inventory, December 31, 2014 Equipment Less: loan payable (for equipment purchase) Total assets $ 20,135 9,360 36,000 28,800 $84,000 60,000 24,000 $118,295 Liabilities and Owner's Equity Long-term debt investment Accumulated depreciation-equipment Sales discounts Total liabilities Owner's equity Total liabilities and owner's equity 60,000 25,200 3,480 88,680 29,615 $118,295