PLEASE help.I posted the templates for the assignment.Thank you set of financial
ID: 2558030 • Letter: P
Question
PLEASE help.I posted the templates for the assignment.Thank you
set of financial statements prepared by Oberlin Financial Statement Deficiencies The following is the complete P5-11 105.4 Corporation: Statement of Income and Retained Earnings For the Fiscal Year Ended August 31, 2016 AICPA Adapted $3,500,000 Sales Less discounts Net sales less cost of goods sold $3,465,00O ,039,000) 2,426,000 Gross margin Less: Selling expenses General and administrative expenses $1,000,000 1,079,000 079,000 347,000 Operating earnings Add other revenues: Purchase discounts Gain on increased fair value of real estate Gain on sale of treasury stock Correction of error in last year's statement $ 10,000 100,000 200,000 90,000 400,000 747,000 53,000 $800,000 320,000) $ 480,000 2,690,000 $3,170,000 Ordinary earnings Add gain on sale of fixed asset Earnings before income tax Less income tax expense Net earnings Add beginning retained earnings ess: Dividends (12% dividend declared but not yet issued) Contingent liability (Note 2) (120,000) 300,000) Ending retained earnings 2,750,000Explanation / Answer
Solution:
Deficiancies in the Statement of Income and Retained earnings for te year ended 31.08.2016 as follows:
Purchase Discount: it should be shown as a reduction of purchase in the computation of cost of goods sold.
Gain on incraesed fair value of real estate:it should not be shown as " Other revenue". rather it will present as addition after Net earning as " Unrealized gain on fair value of real estate".
however above does not impect our net earning but it will present more fair view of our financial statement.
Gain on sale of Treasury stock: cash received on sale is debited to cash account corrospindingly, to incraese liability side, the cost of sold stock along with gain is credited to shareholder's equity account. so there will be no income recognition of gains on sale of treasury stock.
Correction of error in Last year statement: it should not be shown as "Other revenue". rather it will present after ordinary earning as addition under head "Prior period adjustment" to represent fair view.
Contingent liability: the information provides in notes to financial statement does not sufficient to create our libility. however the amount of liability is computed i.e. $ 300000 thats also maximum and chances of occuring such liability is not escertainable from required information as outcome of lawsuit is pending. so it can not be reduced from ratained earnings as computed.
Deficiancies in the Balance sheet as at 31.08.2016 as follows:
Due to Grant Inc. : It will not shown in other liability as with the available information the same will not autheticated as "liability".
Bonds payble ( Including portion payble with in one year): the whole amount of 1,000,000 will not shown in "Other Liability", rather it will bifurcated in two parts under head " Current Liability" and " Other Liability" as follows:
Current liability:
Bonds payble with in one year xxxx
Less: Discount on Bonds payble, if any (xxxx)
Other Laibility or Long term Liability
Bonds payble xxx
Less: Discount on Bonds payble (xxx)
Discount on Bonds payble: It will be bifuracted and represent as deduction from bonds payle as epresent above.
Shareholder's Equity: The impact of "Gain on sale of treasury stock" as mentioned in income statement will be taken in computing shareholder's equity. the amount 200,000 will be added in shareholder's equity after paid in capital in excess of par under head "Paid in capital from treasury stock".
so shareholder's equity will be
Existing $ 3,892,000
Add: Paid in capital from Treasury stock $ 200,000
Total $ 4,092,000
General comments:
Statement of income and Reatined earning represent our income i.e. how much we have earn in the fiscal year. generally depriciation also consider as an expense while computing income. it should be such which represent the true fair of our business as far as income is concerned. it is prepared for the period.
on the other hand, Balance sheet is prepared for a specific date represented as "as at date" which contain the details of Assets and Liabilities holds by us specifically on that date. Generally, company represent huge amount as "Bank" which in our case termed as "Cash" .
overall, Statement should be as it will represent true and fair view, by the way it is the prime documents for our investors.
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