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    Corrections to financial statements

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    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