Up North Company recently hired a new accountant whose first task was to prepare the financial statements for the year ended December 31, 2017. 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, 2016, 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 classified balance sheet. You determine that $6,000 of the loan payable on the equipment must be paid during 2018.
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, 2017 $474,000 S 6,600 10,775 463,225 Add: Purchase returns and allowances Add: Sales returns and allowances Cost of goods available for sale of selling merchandise 303,600 159,625 Cost 93,000 S 1,800 4,200 S 8,400 57,600 (60,000) S 6,625 UP NORTH COMPANY Balance Sheet Year Ended December 31, 201:7 S 20,135 Accounts receivable Merchandise inventory, January 1, 2017 Merchandise inventory, December 31, 2017 Equipment Less: loan payable (for equipment purchase) Total assets $84,000 60,000 24,000 $118,295 Liabilities and Owners Equity S 60,000 Long-term investment Accumulated depreciation-equipment Sales discounts 3,480 Total liabilities Owner's equity 29,615 $118,295 Total liabilities and owner's equity