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Corrections to financial statements

See attached file.

Sheila is grateful to have you on board as her controller, and you are eager to make a good impression on her by finding the errors in her statements. Download Sheila's statements and make the changes to them. All the information you need to find the errors is contained in these statements.

Hint: There are 2 errors in the Balance Sheet, 1 error in the Income Statement, 1 error in the Statement of Owner's Equity, and 2 errors in the Statement of Cash Flows. You will want to keep in mind all that you have learned in terms of the items on financial statements which are duplicated and flow from one statement to another.

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Solution Preview

Please see the attached file. All corrections/explanations in blue.

Balance Sheet
August 31, 2007

Assets Liabilities
Current assets: Current liabilities:
Cash $ 21,300 Accounts payable $ 1,250
Accounts receivable 3,800 Prepaid rent 2,050
Supplies 875 Unearned fees 1,150
Salaries payable 150 Total liabilities $ 4,450
Prepaid insurance 1,670
Total current assets $ 27,795
Property, plant, and
equipment: Owner's Equity
Office equipment $ 21,250 Sheila Shaw, capital 47,720
Less accum. depr. 675
Total Property, plant,
and equipment 20,575 Total liabilities and
Total assets $ 48,370 owner's equity $ 52,170

In the balance sheet errors are - 1. salaries payable is a current liability 2. prepaid rent is a current asset and so we need to make these ...

Solution Summary

The solution explains the errors in the given financial statements and prepares the corrected financial statements