Identify and explain the deficiencies in the statement


Review the balance sheet provided for Marcus Clothing Corporation and the additional information provided on page 162.  Identify and explain the deficiencies in the statement prepared by the company's accountant.  Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant

MARCUS CLOTHING CORPORATION

Balance Sheet At December 31, 2011

Assets

Current assets:                                                                                              

      Cash                                                                                                             $ 137,000

     Accounts receivable, net                                                                                    80,000

     Note receivable                                                                                                  53,000

     Inventories                                                                                                        240,000

    Investments                                                                                                      66,000

                                                                                                                         ______________

       Total current assets                                                                                       576,000

 Other assets:

 Land                                                                                                200,000

Equipment, net                                                                                   320,000

Prepaid expenses                                                                                 27,000

Patent                                                                                                22,000

                                                                                                      __________

    Total other assets                                                                           569,000

                                                                                                     _________________

            Total assets                                                                        $1,145,000                                                                                                             

 

 

                                                             

Liabilities and Shareholders' Equity

Current liabilities:

  Accounts payable                                                                                                 $ 125,000

  Salaries payable                                                                                                         32,000

                                                                                                                             ______________

     Total current liabilities                                                                                               157,000

Long-term liabilities:

  Note payable                                                                               $ 100,000                                                 

  Bonds payable                                                                                300,000                                                                   

  Interest payable                                                                                20,000

                                                                                                      ______________

      Total long-term liabilities                                                                420,000

Shareholders' equity:

  Common stock                                                                               500,000

  Retained earnings                                                                            68,000

                                                                                                      __________

     Total shareholders' equity                                                                 568,000

                                                                                                     _____________________

          Total liabilities and shareholders' equity                                        $1,145,000

 

In the course of your examination you uncover the following information pertaining to the balance sheet:

1.  The company rents its facilities. The land that appears in the statement is being held for future sale.

2.  The note receivable is due in 2013. The balance of $53,000 includes $3,000 of accrued interest. The next interest payment is due in July 2012.

3.  The note payable is due in installments of $20,000 per year. Interest on both the notes and bonds is payable annually.

4.  The company's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.

Required:

Identify and explain the deficiencies in the statement prepared by the company's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

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Financial Accounting: Identify and explain the deficiencies in the statement
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