The Smith Company - Preparation of Financial Statements
We are using the same company as in the first module. However, you need to consider some additional information.
One client had indicated that they were interested in purchasing $35,500 worth of products, so the bookkeeper recorded the transaction. However, the client has not actually committed to the purchase.
The bookkeeper may have made a mistake when computing cost of goods sold. She included total production costs for 2012 and did not adjust ending inventory for the $35,500 worth of units left at the end of the year. The amount of ending inventory was determined using a physical count.
Trial Balance (accounts in alphabetical order)
Accounts payable 67,000
Accounts receivable 24,500
Common stock 10,000
Depreciation expense 24,350
Cost of goods sold 254,000
Equipment (net of depreciation) 296,000
Long-term debt 145,000
Paid-in capital 90,000
Property taxes 8,900
Retained earnings ???
Total 747,550 718,000
Prepare an income statement for the company in good format. Also, explain the adjustments separately. Always include the name of the company and the period covered in the title. Don't forget dollar signs where appropriate. You do not need to include the balance sheet. Consequently, you will not need all the accounts listed above. How does the income or loss compare to the original income statement? Explain the importance of the matching concept. It is important to answer the questions as posed. The document should be two to four pages and written in a clear and concise manner or present tables as required.