Effect of Errors in Physical Inventory Eclipse Motorcycle Shopsells motorcycles, ATVs, and other related supplies andaccessories. During the taking of its physical inventory onDecember 31, 2014, Eclipse Motorcycle Shop incorrectly counted itsinventory as $262,400 instead of the correct amount of $251,900.Enter all amounts as positive numbers. a. State the effect of theerror on the December 31, 2014, balance sheet of Eclipse MotorcycleShop. Balance Sheet Items Overstated / Understated AmountMerchandise Inventory $ Current Assets $ Total Assets $ Owner'sEquity $ b. State the effect of the error on the income statementof Eclipse Motorcycle Shop for the year ended December 31, 2014.Income Statement Items Overstated / Understated Amount Cost ofMerchandise Sold $ Gross Profit $ Net Income $ c. If uncorrected,what would be the effect of the error on the 2015 income statement?Income Statement Items Understated / Overstated Amount Cost ofMerchandise Sold $ Gross Profit $ Net Income $
Effect of Errors in Physical Inventory Eclipse Motorcycle Shopsells motorcycles, ATVs, and other related supplies andaccessories. During the taking of its physical inventory onDecember 31, 2014, Eclipse Motorcycle Shop incorrectly counted itsinventory as $262,400 instead of the correct amount of $251,900.Enter all amounts as positive numbers. a. State the effect of theerror on the December 31, 2014, balance sheet of Eclipse MotorcycleShop. Balance Sheet Items Overstated / Understated AmountMerchandise Inventory $ Current Assets $ Total Assets $ Owner'sEquity $ b. State the effect of the error on the income statementof Eclipse Motorcycle Shop for the year ended December 31, 2014.Income Statement Items Overstated / Understated Amount Cost ofMerchandise Sold $ Gross Profit $ Net Income $ c. If uncorrected,what would be the effect of the error on the 2015 income statement?Income Statement Items Understated / Overstated Amount Cost ofMerchandise Sold $ Gross Profit $ Net Income $
Related questions
Required:
1. Correct the recorded activity for Android for Life during July on the attached spreadsheet
2. Correct the balance sheet and income statement for Android for Life in July 2015 on the attached spreadsheet.
3. Is the large decline in cash a concern?
Android for Life Inc.
On July 1, 2015, Andy incorporated her business under the name Android for Life, Inc. Listed below are various transactions that occurred during the remainder of the year:
(a) On July 1, Andy purchased all of Android for Life common stock for $100,000 cash.
(b) On July 1, Android for Life paid $3,000 to an attorney to prepare and file incorporation documents with the State of Texas.
(c) On July 2, Android for Life borrowed $100,000 from a local bank. The bank note required payment of principal in four annual installments of $25,000 beginning on July 1, 2016. In addition, the note specified interest payments of 6%, with the first payment due on July 1, 2016.
(d) On July 3, Android for Life signed a five-year lease on a building to be used as the veterinary clinic. The lease required a payment of $10,000 per month , payable on the first day of each month. Android for Life paid the amount for July on the date the lease was signed.
(e) On July 5, Android for Life paid $150,000 for medical equipment, office furniture, and other equipment.
(f) On July 6, Android for Life purchased various inventory items for $8,500 cash.
(g) Also on July 6, Android for Life purchased $500 worth of office supplies for cash.
(h) On July 28, Android for Life paid employees wages of $8,000 (which included Andyâs salary of $6,000).
(i) During July, Android for Life received $30,000 from clients for office visits and sales of merchandise (food, clothes, etc.).
A review of Android for Life records at July 31, 2015, revealed the following:
(j) Clients still owed Android for Life $3,500 for services performed during July but not yet billed. These amounts are expected to be billed and collected in August.
(k) At the end of July, a physical count of inventory revealed that $1,000 of inventory was still on-hand.
(l) At the end of July, a physical count of office supplies revealed that $100 of supplies were still on-hand.
(m) Depreciation on the equipment for July was estimated to be $1,250.
(n) Interest needs to be recorded on the note payable.
| Assets | Liabilities | Stockholders' Equity | ||||||||||||
| Accounts | Office | Property, Plant | Intangible | Accumulated | Notes | Interest | Common | Retained | ||||||
| Transaction | Cash | Receivable | Inventory | Supplies | & Equipment | Assets | Depreciation | = | Payable | Payable | Stock | Earnings | ||
| purchase of Common Stock | (100,000) | (100,000) | ||||||||||||
| Payment for Articles of Incorporation | (3,000) | 3,000 | ||||||||||||
| Note / Loan (interest expense on income statement?) | 100,000 | 100,000 | ||||||||||||
| Long-term Lease (show on income statement $10k?) | (10,000) | (10,000) | ||||||||||||
| Long-term Equipment | (150,000) | 150,000 | ||||||||||||
| Inventory Items | (8,500) | 8,500 | ||||||||||||
| Office Supplies | (500) | 500 | ||||||||||||
| Wages | (8,000) | (8,000) | ||||||||||||
| Office Visits/ Merchandise | 30,000 | 30,000 | ||||||||||||
| Services Performed | 3,500 | 3,500 | ||||||||||||
| Inventory Used (income statement expense?) | 7,500 | (7,500) | ||||||||||||
| Office Supplies Used (income statement expense?) | (400) | (400) | ||||||||||||
| Depreciation on Equipment (income statement expense?) | (1,250) | (1,250) | ||||||||||||
| Interest Expense (income statement expense?) | 6,000 | (6,000) | ||||||||||||
| Totals | (142,500) | 3,500 | 1,000 | 100 | 150,000 | 3,000 | (1,250) | 100,000 | 6,000 | (100,000) | 7,850 | |||
| Android Inc. | ||
| Income Statement | ||
| For the month ended July 31st, 2015 | ||
| Revenues | ||
| Sales and Revenues | 33,500 | |
| Less: Cost of goods Sold | (7,500) | |
| Gross Profit | 26,000 | |
| Expenses | ||
| Organizational Expenses | 3,000 | |
| Salaries Expense | 8,000 | |
| Office Supplies Expense | 400 | |
| Depreciation Expense | 1,250 | |
| Interest Expense | 500 | |
| TOTAL EXPENSE | 13,150 | |
| NET INCOME | 12,850 | |
| Android Inc. | ||
| Balance Sheet | ||
| As at July 31st, 2015 | ||
| Assets: | ||
| Current Assets | ||
| Cash | 60,000 | |
| Accounts Receivable | 3,500 | |
| Inventory | 1,000 | |
| Office Supplies | 100 | |
| Total Current Assets | 64,600 | |
| Plant Property and Equipment | ||
| Plant Property and Equipment | 150,000 | |
| Less: Accumulated Depreciation | (1,250) | 148,750 |
| TOTAL ASSETS | 213,350 | |
| LIABILITIES | ||
| Notes Paybles | 100,000 | |
| Interest Payale | 500 | |
| TOTAL LIABILITIES | 100,500 | |
| Shareholder's Equity | ||
| Common Stock | 100,000 | |
| Retained Earnings | 12,850 | |
| TOTAL Shareholder's Equity | 112,850 | |
| TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | 213,350 | |
Required: Prepare a multiple-step income statement in good form.
Calculate retained earnings as of December 31.
Prepare a classified balance sheet ingood form.
Calculate the providedratios 20 points
Additional Information:
Assume that all taxes are at 30% unless otherwise indicated. Theincome tax expense on continuing operations and the income taxliability have not yet been recorded.
Line Item 1 refers to a loss of $70,000 on uninsured damagedfrom a meteor that crashed into a plant facility in New Mexico. Themeteor is considered BOTH UNUSUAL AND INFREQUENT. The applicabletax rate was 35%.
Line Item 2 is income from the publishing division of the firmprior to May 1, 2016. On May 1, management decided to spin-off[discontinue] the operations.
Line Item 3 is also related to the publishing division mentionedin âcâ above. Actual losses on the divisions operations after May 1totaled $50,000. Management further expected additional losses of$30,000 on operations and a loss of $220,000 on the sale of thedivisionâs assets.
Line Item 4 arose from the sale of long-term investments. Theportfolio that originally cost $250,000 was sold for $284,000.
Line Item 5 arose from discovery of equipment, costing $600,000that had been written off in 2014 as an operating expense. As ofthe beginning of the 2016 the accumulated depreciation was$100,000. The book value of the equipment was $500,000.
Line Item 6 refers to restructuring costs.
Line Item 7 refers to inventory that was on Hand on December 31,and was discovered to be obsolete during the year-end count onJanuary 15, 2017.
The investment account represents two portfolios. The firstportfolio cost $200,000 and is worth $215,000. These stocks andbonds are available currently for sale to raise cash resources. Theother investment, costing $1,000,000 and worth $1,000,000, will beheld indefinitely [long-term] by management.
Included in goodwill is an amount equal to $100,000 thatmanagement âcreatedâ after a successful advertising campaign. Theoffsetting credit was to paid-in capital in excess of par value:common.
During 2016, management decided that the usefulness of thefranchise would only last four of the remaining five years.Consequently, management increased the amortization by $100,000 or25 percent in 2016. The new estimate was used in 2016 and would becontinued for the remaining three years.
Inventory on December 31, 2016 was $200,000 after consideringthe decline from line item 7.
The state authorized 100,000 shares of 8 % preferred stock witha par value of $100 of which 8,000 shares have been issued.
The state also authorized 2,000,000 shares of common stock, witha par value of $10 par value. There are no shares in treasury.
The bonds will be refinanced when they are due in 2017.
Foreign currency translation losses were $ 3,000.
Thornhill Company | ||||
Trial Balance | ||||
as of December 31, 2016 | ||||
Account Title | Debit | Credit | ||
8 %, Preferred Stock | $ - | $ 1,000,000.00 | ||
Accounts Payable | 120,000 | |||
Accounts Receivable | 300,000 | |||
Accumulated Depreciation: building | 970,000 | |||
Accumulated Depreciation: equipment | 3,550,000 | |||
Administrative Expenses | 400,000 | |||
Bond Payable | 4,000,000 | |||
Building | 2,000,000 | |||
Cash | 100,000 | $ - | ||
Common Stock (200,000 shares outstanding) | 5,550,000 | |||
Discount on Bonds Payable | 125,000 | |||
Dividends | 300,000 | |||
Equipment | 5,000,000 | |||
Franchise | 340,000 | |||
Freight-in | 15,000 | |||
Goodwill | 785,000 | |||
Income Taxes Expenses | 88,200 | |||
Income taxes Payable | 88,200 | |||
Interest Expense | 700,000 | |||
Inventory | 170,000 | |||
Investments | 1,200,000 | |||
Land | 800,000 | |||
Long-term Notes Payable | 2,500,000 | |||
Net Sales | 5,300,000 | |||
Paid-in Capital in excess of par value: common | 300,000 | |||
Plant Facilities under Construction | 8,000,000 | |||
Prepaid Expenses | 60,000 | |||
Purchase Discounts | 65,000 | |||
Purchase Returns and Allowances | 125,000 | |||
Purchases | 2,575,000 | |||
Retained Earnings | 747,500 | |||
Selling Expenses | 650,000 | |||
Item 1 (net of taxes of $24,500) | 45,500 | |||
Item 2 (net of taxes of $6,000) | 14,000 | |||
Item 3 (net of taxes of $90,000) | 210,000 | |||
Item 4 | 34,000 | |||
Item 5 (net of taxes of $150,000) | 350,000 | |||
Item 6 | 840,000 | |||
Item 7 | 10,000 | |||
Total | $ 24,713,700 | $ 24,713,700 | ||
Financial Ratios
Current Ratio = Current Assets /Current Liabilities.
Quick Ratio = (Cash + MarketableSecurities + Receivables) / Current Liabilities.
Working Capital = Current Assets -Current Liabilities.
Total debt to total assets = Total Liabilities / TotalAssets.
Gross Profit Rate = Gross Profit/ Net Sales
Netincome as a percentage of sales = Net Income / Net Sales
Return on assets= Operating Income
[Beginning Total Assets + Ending Total Assets]/2
Assume that beginning assets were $13,720,000
Return on stockholdersâ equity=
Net Income
[BeginningTotal Stockholdersâ Equity + Ending Total StockholdersâEquity]/2
Assume that beginning stockholdersâequity was $7,947,500
Price-Earnings Ratio = MarketPrice per Commons Share
Earnings per Common Share
Assume a market price of $ 1.00
Accounts Receivable Turnover = NetSales
Assume that beginning accounts receivable were $ 300,000
Average Collection Period = 365 days/ Accounts Receivable Turnover Ratio
Inventory Turnover = Cost of Goods Sold
Average Sales Period = 365 days /Inventory Turnover Ratio
Operating Cycle = The AverageCollection Period + The Average Sales Period.
The question Requires me to do thebalance sheet and calculate the ratios from the trial balance andthe additional informations. use the same information that is thetrial balance and the additional information to solve forMulti-step income statement.
