Following are the balance sheet and income statement for TagPro Inc.:
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TagPro, Inc.
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Balance Sheets
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January 31
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Assets
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2016
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2015
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Cash and cash equivalents
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mce_markernbsp; 119,790
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mce_markernbsp; 113,528
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Accounts receivable, net of allowance for doubtful accounts of $10,970 at 01/31/16 and $11,352 01/31/15
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481,725
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457,512
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Inventory
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139,357
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144,731
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Short-term marketable securities
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108,140
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107,934
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Total current assets
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849,012
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823,705
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Property, plant and equipment, net of accumulated depreciation
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890,401
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860,304
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Other assets
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83,832
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73,874
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Total assets
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mce_markernbsp; 1,823,245
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mce_markernbsp; 1,757,883
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Liabilities
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Accounts payable
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$102,233
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$107,184
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Accrued compensation
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76,235
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52,983
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Unearned revenue
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90,010
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80,247
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Income taxes payable
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19,135
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17,925
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Other current liabilities
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69,518
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51,582
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Total current liabilities
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357,131
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309,921
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Notes payable
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217,196
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271,680
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Other long-term liabilities
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26,964
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26,912
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Total liabilities
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601,291
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608,513
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Stockholders' equity
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Common stock, no par value; 250,000 shares authorized;
113,400 and 92,050 shares issued and outstanding respectively
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276,313
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249,494
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Retained earnings
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945,641
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899,876
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Total stockholders' equity
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1,221,954
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1,149,370
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Total liabilities and stockholders' equity
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mce_markernbsp; 1,823,245
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mce_markernbsp; 1,757,883
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TagPro, Inc.
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Income Statement
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For the Year Ended January 31, 2016
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Product sales
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mce_markernbsp; 3,295,885
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Bad debt expense
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-32,990
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Cost of goods sold
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-1,125,614
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Depreciation
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-45,102
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Dividends
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-46,025
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Income tax expense
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-384,775
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Interest expense
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-29,814
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Research and development
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-439,128
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Selling, general & administrative expenses
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-1,166,672
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Service revenue
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20,000
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Total
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mce_markernbsp; 45,765
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Required:
a. Prepare in good form a classified (multi-step) income statement showing total revenue.
b. Calculate the following ratios for 2016:
1.Earnings per share
2. Current ratio
3. Gross profit percentage
4. Return on assets
5.Net profit margin
6. Total asset turnover
c. Prepare the necessary journal entries to correct for each of the following attempts by TagPro to manipulate its financial statements. (Hint: compare the entry TagPro recorded to the correct entry to discern the correcting entry.)
1.Issued an additional 5,000 shares of common stock in exchange for $25,000. Recorded the cash as sales revenue.
2.Recorded as sales revenue $75,000 of cash received for services to be rendered in March 2016.
3.Sold equipment with a book value $15,000 for $20,000 cash and a $35,000 long- term note receivable. Recorded $55,000 of sales revenue and failed to remove the sold equipment from the books.
4.TagPro recorded only half of its actual depreciation expense during 2016.
d.Recalculate the ratios in question b after taking into account the transactions and events listed in part c. You may ignore any income tax effects.
e. Was TagPro successful in its effort to change the portrait of the company painted by the financial statements?