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    Sherwood Real Estate - errors in financial statements

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    Balance Sheet

    Assets Liabilities
    Cash . . . . . . . . . . . . . . $ 1,300 Accounts payable . . . . . . . . $ 100,000
    Receivable from sale . . Mortgage payable . . . . . . . 6,000,000
    of real estate . . . . . . 5,000,000 Total liabilities . . . . . . . . . . $ 6,100,000
    Interest receivable* . . . 180,000
    Real estate properties . 6,000,000
    Total assets . . . . . . . . $11,181,300

    Stockholders' Equity

    Capital stock . . . . . . . . . . . $ 10,000
    Retained earnings . . . . . . 5,071,300
    Total stockholders' equity . . 5,081,300
    Total liabilities and stockholders' equity . . . . . . . . $11,181,300

    *Interest Receivable applies to Receivable from sale of real estate.

    Income Statement
    Gain on sale of real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,200,000
    Interest income* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180,000
    Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,380,000
    Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,000
    Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,180,000

    *Interest Income applies to Receivable from sale of real estate.

    Sherwood Company is using these financial statements to entice investors to buy stock in the company. However, a recent FBI investigation revealed that the sale of real estate was a fabricated transaction with a fictitious company that was recorded to make the financial statements look better. The sales price was $5,000,000 with a zero cash down payment and a $5,000,000 receivable. Pre pare financial statements for Sherwood Company showing what its total assets, liabilities, stockholders' equity, and income really are with the sale of real estate removed.

    © BrainMass Inc. brainmass.com June 3, 2020, 8:24 pm ad1c9bdddf
    https://brainmass.com/business/finance/sherwood-real-estate-errors-in-financial-statements-136074

    Solution Preview

    The entire solution including journal entries is shown in the attached Excel. The schedule to analyze the errors in the financial statements does not translate well to this format, and is not included below.

    Adjusting Entries Debit Credit

    Gain on sale 5,000,000 ...

    Solution Summary

    The solution in Excel presents a schedule to analyze the errors in the financial statements of Sherwood Real Estate Company. Beginning with a trial balance, correcting entries are prepared and posted for an adjusted trial balance. Using the adjusted trial balance, financial statements are compiled in good form.

    $2.19

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