AC 302 WEEK 10 Problem 24 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 on January 2, 2009. The client provides you with the information below.
ALMADEN CORPORATION
BALANCE SHEET
DECEMBER 31, 2014
Assets Liabilities
Current assets $1,888,200 Current liabilities $968,900
Other assets 5,194,244 Long-term liabilities 1,486,220
Capital 4,627,324
$7,082,444 $7,082,444
An analysis of current assets discloses the following.
Cash (restricted in the amount of $302,260 for plant expansion) $571,430
Investments in land 187,880
Accounts receivable less allowance of $30,840 481,890
Inventories (LIFO flow assumption) 647,000
$1,888,200
Other assets include:
Prepaid expenses $62,970
Plant and equipment less accumulated depreciation of $1,445,400 4,146,300
Cash surrender value of life insurance policy 84,930
Unamortized bond discount 38,074
Notes receivable (short-term) 163,140
Goodwill 252,260
Land 446,570
$5,194,244
Current liabilities include:
Accounts payable $512,770
Notes payable (due 2017) 158,550
Estimated income taxes payable 146,480
Premium on common stock 151,100
$968,900
Long-term liabilities include:
Unearned revenue $491,360
Dividends payable (cash) 201,660
8% bonds payable (due May 1, 2019) 793,200
$1,486,220
Capital includes:
Retained earnings $2,767,824
Capital stock, par value $10; authorized 200,000 shares, 185,950 shares issued 1,859,500
$4,627,324
The supplementary information below is also provided.
1. On May 1, 2014, the corporation issued at 95.2, $793,200 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 $184,780. The ending inventories for 2013 and 2014 were correctly computed.
(b) In 2014, accrued wages in the amount of $226,410 were omitted from the balance sheet, and these expenses were not charged on the income statement.
(c) In 2014, a gain of $176,600 (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- primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor- line will be of comparable quality but priced 50% below Almaden- line. The competitor announced its new line on January 14, 2015. Almaden indicates that the company will meet the 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 January 28, 2015, prior to completion of the audit, of heavy damage because of a recent fire to one of Almaden- 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. (List current assets in order of liquidity. Enter account name only and do not provide descriptive information.)
USA 
India