Share
Explore BrainMass

Financial Statements

Lester Corporation operates a retail sales and service business for various types of equipment.
The company's 2008 financial statements are presented under the appropriate tab.
Because a new bookkeeper was hired late in 2008, the owners suspect that there may be errors
in the financial statements. They have asked you to look at the statements and make any necessary
corrections.

The following information is available:

1. The company rents a building for showroom and office purposes, at a rent of $8,000 per month.
On September 1 of 2008, they paid $40,000 rent in advance, which was properly charged at that time
to Prepaid Rent. No additional payments, and no further entries, have been made.

2. Depreciation expense of $16,200 for the year has not been recorded.

3. During the year, payments of $48,700 were received from customers as advance payments on
service contracts. The entire amount was treated as Service Revenue by the bookkeeper. At the end
of 2008, $32,400 of these payments had not yet been earned.

4. The credit manager determined that $3,400 of accounts receivable should be written off, but
no entry has been made. An aging of the accounts receivable shows that the allowance should
be $4,208.

5. Employee bonuses of $20,000 have not been recorded. These bonuses were awarded in December but will not be
paid until January 2009. Ignore payroll taxes when making your adjustment.

6. The company has two long-term notes payable. One, for $80,000, which bears simple interest of 7%, has been outstanding for several years. Interest has been properly accrued on this note. The other note, for $40,000, bears simple interest of 8%. The company borrowed this money on October 1, 2008. No interest has been accrued on this note.

7. Income taxes are 40% of income before tax. Most of the income taxes have been paid, but as indicated on the balance
sheet, there is still an amount due. If income before taxes changes, you should also change income tax expense and
payable accordingly. Ignore any differences between income tax and financial accounting methods of measuring income.

Instructions:
Submit your answer in a copy of this file.
One tab should show a revised set of financial statements.
The other tab should show support for your revisions. For each of the numbered items above, indicate what changes, if any,
are required. You may show your changes either by using debit/credit journal entries, or by showing the accounts to be
increased or decreased and the amounts. Show any necessary calculations.

Attachments

Solution Preview

Lester Corporation operates a retail sales and service business for various types of equipment.
The company's 2008 financial statements are presented under the appropriate tab.
Because a new bookkeeper was hired late in 2008, the owners suspect that there may be errors
in the financial statements. They have asked you to look at the statements and make any necessary
corrections.

The following information is available:

1. The company rents a building for showroom and office purposes, at a rent of $8,000 per month.
On September 1 of 2008, they paid $40,000 rent in advance, which was properly charged at that time
to Prepaid Rent. No additional payments, and no further entries, have been made.

2. Depreciation expense of $16,200 for the year ...

Solution Summary

This provides the steps to prepare the Financial Statements

$2.19