Bryant Corporation was incorporated on December 1, 2009, and began operations one week later. Before closing the books for the fiscal year ended November 30, 2010, Bryant's controller prepared the following financial statements:
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Bryant Corporation was incorporated on December 1, 2009, and beganStatement of IncomeFor Year Ended November 30, 2010
Net sales ............... $2,950,000
Operating expenses
Cost of sales ............ $1,670,000
Selling and administrative ......... 650,000
Depreciation .............................. 40,000
Research and development ....... 30,000
Total expenses .......................... $2,390,000
Income before income taxes ........ $ 560,000
Income tax expense .................. 168,000
Net Income .............................. $ 392,000
Bryant Corporation is in the process of negotiating a loan for expansion purposes, and the bank has requested audited financial statements. During the course of the audit, the following additional information was obtained:
1. Included in selling and administrative expenses were $5,000 of costs incurred on software being developed for sale to others. The technological feasibility of the software has been established.
2. Based on an aging of the accounts receivable as of November 30, 2010, it was estimated that $36,000 of the receivables will be uncollectible.
3. Inventories at November 30, 2010, did not include work-in-process inventory costing $12,000 sent to an outside processor on November 26, 2010.
4. A $3,000 insurance premium paid on November 30, 2010 on a policy expiring one year later was charged to insurance expense.
5. Bryant adopted a pension plan on June 1, 2010 for eligible employees to be administered by a trustee. Based upon actuarial computations, the first 12 months accrued pension plan expense was estimated at $45,000.
6. On June 1, 2010, a production machine purchased for $24,000 was charged to repairs and maintenance. Bryant depreciates machines of this type on the straight-line method over a five-year life, with no salvage value, for financial and tax purposes.
7. Research and development costs of $150,000 were incurred in the development of a patent that Bryant expects to be granted during the fiscal year ending November 30, 2011. Bryant initiated a five-year amortization of the $150,000 total cost during the fiscal year ended November 30, 2010.
8. During December 2010, a competitor company filed suit against Bryant for patent infringement claiming $200,000 in damages. Bryant's legal counsel believes that an unfavorable outcome is probable. A reasonable accrual based on an estimate of the court's award to the plaintiff is $50,000.
9. The 30% effective tax rate was determined to be appropriate for calculating the provision for income taxes for the fiscal year ended November 30, 2010. Ignore computation of the deferred portion of income taxes.
Required
1. Prepare the necessary correcting entries.
2. Prepare a corrected balance sheet of Bryant Corporation as of November 30, 2010 and a corrected statement of income for the year ended November 30,2010.