Chapter 1, Problem 1.4CP

Using Financial Reports: Identifying and Correcting Deficiencies in an Income Statement and Balance Sheet

Performance Corporation was organized on January 1, 2015. At the end of 2015, the company had not yet completed an accountant: however, an employee who was “good with numbers” prepared the following statements at that date:

PERFORMANCE CORPORATION December 31,2015
Income from sales of merchandise	$180,000
Total amount paid for goods sold during 2015	(90,000)
Selling costs	(25,000)
Depreciation (on service vehicles used)	(12,000)
Income from services rendered	52,000
Salaries and wages paid	(62,000)

PERFORMANCE CORPORATION December 31,2015
Resources
Cash		$32,000
Merchandise inventory (held for resale)		42,000
Service vehicles		50,000
Retained earnings (profit earned in 2015)		32,250
Grand total		$156,250
Debts
Payables to suppliers		$ 17,750
Note owed to bank		25,000
Due from customers		13,000
Total		$55,750
Supplies on hand (to be used in rendering services)	$15,000
Accumulated depreciation* (on service vehicles)	12,000
Common stock, 6,500 shares	65,000
Total		92,000
Grand total		$147,750
*This represents the portion of the service vehicles that has been used up to date.

Required:

1. 1. List all deficiencies that you can identify in these statements. Give a brief explanation of each one.
2. 2. Prepare a proper income statement (correct net income is $32,250 and income tax expense $10,750) and balance sheet (correct total assets are $140,000).