You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.
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MARCUS CLOTHING CORPORATION
Balance Sheet
At December 31, 2013
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| Assets |
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Current assets:
|
|
|
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Cash
|
|
$ 137,000
|
|
Accounts receivable, net
|
|
80,003
|
|
Note receivable
|
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53,000
|
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Inventories
|
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240,000
|
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Investments
|
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66,030
|
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Total current assets
|
|
576,0:0
|
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Other assets:
|
|
|
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Land
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$200,000
|
|
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Equipment, net
|
320,000
|
|
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Prepaid expenses
|
27,000
|
|
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Patent
|
22,000
|
|
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Total other assets
|
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569,000
|
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Total assets
|
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$1,145,000
|
|
liabilities and Shareholders' Equity
|
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Current liabilities:
|
|
|
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Accounts payable
|
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$ 125,000
|
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Salaries payable
|
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32,000
|
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Total current liabilities
|
|
157,000
|
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Long-term liabilities:
|
|
|
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Note payable
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$ 100,000
|
|
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Bonds payable
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300,000
|
|
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Interest payable
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20,000
|
|
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Total long-term liabilities
|
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420,000
|
|
Shareholders' equity:
|
|
|
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Common stock
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500,000
|
|
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Retained earnings
|
68,000
|
|
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Total shareholders' equity
|
|
568,000
|
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Total liabilities and shareholders' equity
|
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$1,145,000
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In the course of your examination you uncover the following information pertaining to the balance sheet:
1. The company rents its facilities. The land that appears in the statement is being held for future sale.
2. The note receivable is due in 2015. The balance of $53,000 includes $3,000 of accrued interest. The next interest payment is due in July 2014.
3. The note payable is due in installments of $20,000 per year. Interest on both the notes and bonds is payable annually.
4. The company's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.
Required:
Identify and explain the deficiencies in the statement prepared by the company's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.