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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


Current assets:






Accounts receivable, net



Note receivable






Prepaid expenses



Total current assets



Other assets:






Buildings, net



Equipment, net









Total other assets



Total assets






Liabilities and Shareholders' Equity


Current liabilities:



Accounts payable



Salaries payable



Interest payable



Total current liabilities



Long-term liabilities:



Note payable



Bonds payable



Unearned revenue



Total long-term liabilities



Shareholders' Equity:



Common Stock



Retained earnings



Total shareholders' equity



Total liabilities and shareholder's equity



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.

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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