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problem: You recently joined internal auditing department of Kay Sportswear Corporation. As one of your 1st assignments, you are examining a balance sheet created by a staff accountant.

Kay Sportswear Corporation

Balance Sheet

At December 31, 2009

Assets

Current assets:

 

 

Cash

 

$220,000

Accounts receivable, net

 

340,000

Note receivable

 

80,000

Inventories

 

600,000

Prepaid expenses

 

40,000

Total current assets

 

$1,280,000

Other assets:

 

 

Land

$500,000

 

Buildings, net

2,056,000

 

Equipment, net

400,000

 

Investments

50,000

 

Patent

60,000

 

Total other assets

 

3,066,000

Total assets

 

$4,346,000

 

 

 

Liabilities and Shareholders' Equity

   

Current liabilities:

 

 

Accounts payable

 

$165,000

Salaries payable

 

75,000

Interest payable

 

45,000

Total current liabilities

 

285,000

Long-term liabilities:

 

 

Note payable

$300,000

 

Bonds payable

500,000

 

Unearned revenue

80,000

 

Total long-term liabilities

 

880,000

Shareholders' Equity:

 

 

Common Stock

$2,000,000

 

Retained earnings

1,181,000

 

Total shareholders' equity

 

3,181,000

Total liabilities and shareholder's equity

$4,346,000

 

In the course of your examination you uncover the following data pertaining to the balance sheet:

[A] Land and buildings represent the corporate headquarters & manufacturing facilities.

[B] The note receivable is due in 2011. The balance of dollar 80,000 includes dollar 5,000 of accrued interest. The next interest payment is due in July, 2010.

[C] The note payable is due in installments of $50,000 per year. Interest on both the notes and bonds is payable yearly.

[D] The firm's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.

[E] Unearned revenue will be received ratably [equally] over the next two (2) years.

Required; 
Identify and describe deficiencies in the balance sheet prepared by the firm's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M922266

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