PROBLEM #3 The following are the recent Income Statement and the Balance Sheet o
ID: 2592748 • Letter: P
Question
PROBLEM #3
The following are the recent Income Statement and the Balance Sheet of Zaman Inc. in condensed formats:
Unadjusted Adjusted
Sales revenue
$ 500,000
Cost of goods sold
300,000
Gross profit
200,000
Operating expenses
100,000
Income before interest and taxes
100,000
Interest expense
20,000
Net Income
$ 80,000
Current Assets
$ 300,000
Equipment
1,425,000
Accumulated depreciation – equipment
(450,000)
Equipment (net)
975,000
Total Assets
$ 1,275,000
Current Liabilities
$ 205,000
Long-term bank loan
500,000
Common shares
400,000
Retained earnings
170,000
Total liabilities and shareholders’ equity
$ 1,275,000
A Review conducted by the Auditor revealed that the following:
A credit sale made at the very end of the year in the amount of $30,000 was not recorded. The Cost of Goods associated with the sale was $20,000.
Annual Depreciation of $50,000 was not recorded.
December’s electricity bill in the amount of $2,000 was received. However, it was not recorded.
Required:
How are the Accounts in the above Income Statement and Balance Sheet affected by the three (3) items listed above?
Answer the Question by inserting the correct Balance of each Account, (regardless of whether or not it is affected by the auditors’ findings), in the Right hand column entitled “Final Bal” provided above. Ensure that you place all account balances in this column.
Sales revenue
$ 500,000
Cost of goods sold
300,000
Gross profit
200,000
Operating expenses
100,000
Income before interest and taxes
100,000
Interest expense
20,000
Net Income
$ 80,000
Current Assets
$ 300,000
Equipment
1,425,000
Accumulated depreciation – equipment
(450,000)
Equipment (net)
975,000
Total Assets
$ 1,275,000
Current Liabilities
$ 205,000
Long-term bank loan
500,000
Common shares
400,000
Retained earnings
170,000
Total liabilities and shareholders’ equity
$ 1,275,000
ROBLEM #3 The following are the recent Income Statement and the Balance Sheet of Zaman Inc. in condensed formats: Unadiusted Adiusted ales revcnuc 500,000 300,000 200,000 100,000 100,000 20,000 S80,000 ost of goods sol ross profit perating expenses ncome before interest a taxes nterest expense et ome urrent Assets quipmcnt cumulated depreciation- equipment quipment (net ets urrent Liabilities ong-term ann on res earnings ties and share ers' equity A Review conducted by the Auditor revealed that the following: 1. A credit sale made at the very end of the year in the amount of $30,000 was not recorded. The Cost of Goods associated with the sale was $20,000. 2. Annual Depreciation of S50,000 was not recorded 3. December's electricity bill in the amount of $2,000 was received. However, it was not recorded Required: How are the Accounts in the above Income Statement and Balance Sheet affected by the three (3) items listed above: Answer the Question by inserting the correct Balance of each Account, (regardless of whether or not it is affected by the auditors' findings), in the Right hand column entitled "Final Bal” provided abov e. Ensure that you p lace all account balances in this column. Ignore the effect of Income Taxes. Journal Entries are not required, but may be helpful to arriving at your answers.Explanation / Answer
The following are the recent Income Statement and the Balance Sheet of Zaman Inc. in condensed formats:
Unadjusted Adjusted
Sales revenue
$ 500,000
$ 530,000
Cost of goods sold
300,000
320,000
Gross profit
200,000
210,000
Operating expenses
100,000
152,000
Income before interest and taxes
100,000
58,000
Interest expense
20,000
20,000
Net Income
$ 80,000
38,000
Current Assets
$ 300,000
$ 310,000
Equipment
1,425,000
1,425,000
Accumulated depreciation – equipment
(450,000)
(500,000)
Equipment (net)
975,000
925,000
Total Assets
$ 1,275,000
$ 1,235,000
Current Liabilities
$ 205,000
$ 207,000
Long-term bank loan
500,000
500,000
Common shares
400,000
400,000
Retained earnings
170,000
128,000
Total liabilities and shareholders’ equity
$ 1,275,000
$1,235,000
Working Notes:
1. Due to credit sale of $30,000 , Sale Revenue increased by $30,000 and Cost Of Goods sold increased by 20,000. Current Assets decreased by 20,000 due to decreased in stock by 20,000. But as it was credit sales the receivables also increased by 30,000. Thus net effect on Current Assets in increase by 10,000.
2. Due to annual depreciation of $50,000 the Operating expense increase by 50,000. Also, the accumulated depreciation increased by 50,000.
3. Due to electricity Bill of $ 2,000 Operating expenses increased by 2,000. Also the Current Liabilities increased as the Bill was due.
Sales revenue
$ 500,000
$ 530,000
Cost of goods sold
300,000
320,000
Gross profit
200,000
210,000
Operating expenses
100,000
152,000
Income before interest and taxes
100,000
58,000
Interest expense
20,000
20,000
Net Income
$ 80,000
38,000
Current Assets
$ 300,000
$ 310,000
Equipment
1,425,000
1,425,000
Accumulated depreciation – equipment
(450,000)
(500,000)
Equipment (net)
975,000
925,000
Total Assets
$ 1,275,000
$ 1,235,000
Current Liabilities
$ 205,000
$ 207,000
Long-term bank loan
500,000
500,000
Common shares
400,000
400,000
Retained earnings
170,000
128,000
Total liabilities and shareholders’ equity
$ 1,275,000
$1,235,000
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