Balance Sheet As of December 31, 2020 2019 Inventory Total current assels Property, plant, and equipment: Equipment Accumulated depreciation Total property, plant, and equipment 207,000 $ 803,000 202,000 $ 640,000 $ 167,000 (121,600) $ 45,400 $ 848,400 $ 169,500 (106,400) $ 63,100 $ 703,100 Total Assets Liabilities and Shareholders' Equity Liabilities: Accounts payable Shareholders' equity: Common stock, par value $10, authorized 50,000 shares, issued and outstanding 20,000 shares Retained earnings Total shareholders' equity Total Liabilities and Shareholders' Equity $ 121,400 $ 196,100 $ 260,000 467,000 $ 727,000 $ 848,400 $ 260,000 247,000 $ 507,000 $ 703,100 Statement of Income For the Years Ended December 31, 2020 2019 Sales Cost of sales Gross profit Operating expenses Administrative expenses $1,000,000 (430,000) $ 570,000 $ 210,000 140,000 $ (350,000) $ 220,000 $ 900,000 (395,000) $ 505,000 $ 205,000 105,000 $ (310,000) $ 195,000 Net income During the course of the audit, the following additional facts were determined: • An analysis of collections and losses on accounts receivable during the past 2 years indicates a drop in anticipated losses because of bad debts. After consultation with management, it was agreed that the loss experience rate on sales should be reduced from the recorded 2% to 1%, beginning with the year ended December 31, 2020. • An analysis of the available-for-sale securities revealed that this portfolio consisted entirely of short-term investments in marketable securities that were acquired in 2019. The total market valuation for these investments as of the end of cach year was as follows: December 31, 2019, S81,000; December 31, 2020, S62,000. • The merchandise inventory at December 31, 2019, was overstated by $4,000, and the merchandise inventory at December 31, 2020, was overstated by $6,100. • On January 2, 2019, equipment costing $12,000 (estimated useful life of 10 years and residual value of $1,000) was incorrectly charged to Operating Expenses. Ingalls records depreciation via the straight-line method. In 2020, fully depreciated equipment (with no residual valuc) that originally cost S17,500 was sold as scrap for S2,500. Ingalls credited the proceeds of $2,500 to Equipment. • An analysis of 2019 operating expenses revealed that Ingalls charged to expense a 3-year insurance premium of S2,700 on January 15, 2019.