PROBLEM 1 You have been engaged to prepare audited financial statement figures for BOURNE, Inc. The records are in agreement with the following balance sheet: BOURNE, INC. Balance Sheet December 31, 2017 Assets Liabilities and Capital Cash P10,000 Accounts Payable P10,000 Accounts 12,000 Notes Payable 3,000 receivable Notes receivable 13,000 Common Stock 20,000 Inventory 25,000 Additional paid-in 40,000 capital Equipment- net 40,000 P100,000 Retained Earnings 27,000 P100,000 A review of the records of the corporation indicates that the errors and omissions listed in the table below had not been corrected during the applicable years: Inventory Inventory Depreciation Prepaid Unearned Accrued December Overstated Understated Expense Expense Income Expense 31 2014 --- P6,000 P250 P900 --- P200 2015 P7,000 --- 500 700 P400 75 2016 8,000 --- 150 500 --- 100 2017 --- 9,000 350 600 300 50 The net income according to the records is: 2015, P7,500; 2016, P6,500; and 2017, P5,500. No dividends were declared during these years, and no adjustments were made to retained earnings. Ignoring income tax effects, answer the following questions: Adjusted net income/(net loss) for 2015: Adjusted net income/(net loss) for 2016: Adjusted net income/(net loss) for 2017: What is the effect of these errors on the net working capital at the end of 2017? What is the adjusted balance of the stockholders’ equity at December 31, 2017?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
PROBLEM 1
You have been engaged to prepare audited financial statement figures for BOURNE, Inc. The records are in agreement with the following
BOURNE, INC.
Balance Sheet December 31, 2017
|
Assets |
|
Liabilities and Capital |
|
|
Cash |
P10,000 |
Accounts Payable |
P10,000 |
|
Accounts |
12,000 |
Notes Payable |
3,000 |
|
receivable |
|
|
|
|
Notes receivable |
13,000 |
Common Stock |
20,000 |
|
Inventory |
25,000 |
Additional paid-in |
40,000 |
|
|
|
capital |
|
|
Equipment- net |
40,000 P100,000 |
|
27,000 P100,000 |
A review of the records of the corporation indicates that the errors and omissions listed in the table below had not been corrected during the applicable years:
|
|
Inventory |
Inventory |
|
Prepaid |
Unearned |
Accrued |
|
December |
Overstated |
Understated |
Expense |
Expense |
Income |
Expense |
|
31 |
|
|
|
|
|
|
|
2014 |
--- |
P6,000 |
P250 |
P900 |
--- |
P200 |
|
2015 |
P7,000 |
--- |
500 |
700 |
P400 |
75 |
|
2016 |
8,000 |
--- |
150 |
500 |
--- |
100 |
|
2017 |
--- |
9,000 |
350 |
600 |
300 |
50 |
The net income according to the records is: 2015, P7,500; 2016, P6,500; and 2017, P5,500. No dividends were declared during these years, and no adjustments were made to retained earnings.
Ignoring income tax effects, answer the following questions:
- Adjusted net income/(net loss) for 2015:
- Adjusted net income/(net loss) for 2016:
- Adjusted net income/(net loss) for 2017:
- What is the effect of these errors on the net
working capital at the end of 2017? - What is the adjusted balance of the
stockholders’ equity at December 31, 2017?
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