Question

The following financial information represents Metlock Company’s first year of operations, 2017:

Income Statement				Balance Sheet
Sales		$200,000		Cash		$5,000
Cost of goods sold		92,000		Accounts receivable		93,000
Gross profit		$108,000		Property, plant, and equipment		41,000
Operating expenses		64,000		Total assets		$139,000
Net income		$44,000		Accrued payables		$14,000
				Notes payable		81,000
				Shareholders’ equity		44,000
				Total liabilities and shareholders’ equity		$139,000

After reading Metlock’s financial statements, you conclude that the company had a very successful first year of operations. However, after further examination, you note that the sales figure on the income statement was not adjusted for a bad debt expense. You also realize that a large percentage of Metlock’s sales were to three customers, one of which, Litzenberger Supply, is in very questionable financial health, although still in business. Litzenberger owes Metlock $47,000 as of the end of 2017.

(a1) Adjust the financial statements of Metlock Company to reflect a more conservative reporting with respect to bad debts. That is, establish a provision for the uncollectibility of Litzenberger’s account. Recompute net income. (Enter loss using either a negative sign preceding the number e.g. -2,945 or parentheses e.g. (2,945).)

Metlock Company Income Statement For the Year Ended December 31, 2017
		$
		$

Metlock Company Balance Sheet December 31, 2017
Assets
				$
				$
Liabilities and Shareholders' Equity
		$
				$
				$

Answer 1