Question

The ludmilla corporation does not use the services of a professional accountant. At the end of the second year of operations, 20X2, the company’s office manager prepared its financial statements. Listed next in random order are the items appearing in these statements.

Accounts Receivable	$32,400.00	Office Supplies inventory	$2,000.00
Paid-in Capital	$100,000.00	Notes Payable	$8,000.00
Trucks	$33,700.00	Merchandise Inventory	$61,000.00
Cost of goods sold	$157,000.00	Accounts Payable	$14,000.00
Salaries expense	$86,000.00	Notes Receivable	$2,500.00
Unexpired insurance	$1,800.00	Utilities Expense	$5,000.00
Rent expense	$19,500.00	Net income	$8,200.00
Sales	$285,000.00	Retained Earnings
Advertising expense	$9,300.00	January 1, 20X2	$18,000.00
Cash	$14,800.00	December 31, 20X2	$26,200.00

You are satisfied that the statements in which these items appear are correct, except for several matters that the office manager overlooked. The following information should have been entered on the books and reflected in the financial statements:

a) The amount shown for rent expense includes $2000 that is actually prepaid for the first month in 20X3

b) Of the ampunt shown for unexpired insurance, only $800 is prepaid for periods after 20X2.

c) Depreciation of trucks for 20X2 is $5,000

d) $1,200 of the office supplies in the inventory shown earlier was actualy issued and used during 20X2 operations

e) Cash dividends of $4,000 were declared in December 20X2 by the board of directors. The company will distribute these dividends in February 20X3

Prepare in good from the following corrected financial statements, ignoring income taxes:

1) Income statement for 20X2

2) Statement of changes in retained earnings for 20X2

3) Balance sheet at December 31, 20X2

It is not necessary to prepare a columnar analysis to show the transactions effects on each element of the accounting equation.

Answer 1