Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2014.
P24-1 Your firm has been engaged to examine the financial statements of Almaden Corporation for the year 2014. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization of Jan 2, 2009. The client provides you with the following information.
December 31, 2014
Current Assets $1,881,100 Current Liabilities 962,400
Other Assets 5,171,400 Long-term Liabilities 1,439,500
7,052,500 Capital 4,650,600
An analysis of current assets discloses the following.
Cash (restricted in the amount of $300,000 for plant expansion) 571,000
Investments in land 185,000
Accounts receivable less allowance of $30,000 480,000
Inventories (LIFO flow assumption) 645,100
Other assets include:
Prepaid exp. 62400
Plant and equip less accumulated depreciation of 1430000 4130000
Cash surrender value of life insurance policy 84000
Unamortized bond discount 34500
Notes receivable short term 162300
Accounts payable 510000
Notes payable due 2017 157400
Estimated income tax payable 145000
Premium on common stock 150000
Long term liabilities
Unearned rev. 489500
Dividends payable cash 200000
8% bond payable (due May 1 2019) 750000
Retained earnings 2810600
Common stock par value $10 authorized 200000 shares 184000 shares issued 1840000
The supplementary information below is also provided:
1. On May 1, 2014 the corp issued at 95.4, 750000 of bonds to finance plant expansion. The long term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.
2. The bookkeeper made the following mistakes.
a. in 2012, the ending inventory was overstated by 183,000. The ending inventories for 2013 and 2014 were correctly computed.
b. in 2014, accrued wages in the amount of 225000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
c. In 2014, a gain of 175000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.
3. A major competitor has introduced a line of products that will compete directly with Almaden’s primary line, now being produced in a specially designed new plant. Because of manufacturing in novations, the competitor’s line will be of comparable quality but priced 50% below Almaden’s line. The competitor announced its new line on Jan 14, 2015. Almaden indicates that the company will meet lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs.
4. You learned on Jan 28, 2015 prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden’s two plants, the loss will not be reimbursed by insurance. The newspapers described the event in detail.
Analyze the above information to prepare a corrected balance sheet for Almaden in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.
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