Explain deficiencies in the statement prepared by company

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Reference no: EM13974359

You recently joined the internal auditing department of Marcus Clothing Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.

MARCUS CLOTHING CORPORATION Balance Sheet At December 31, 2013
Assets
Current assets:
Cash		$ 137,000
Accounts receivable, net		80,003
Note receivable		53,000
Inventories		240,000
Investments		66,030
Total current assets		576,0:0
Other assets:
Land	$200,000
Equipment, net	320,000
Prepaid expenses	27,000
Patent	22,000
Total other assets		569,000
Total assets		$1,145,000
liabilities and Shareholders' Equity
Current liabilities:
Accounts payable		$ 125,000
Salaries payable		32,000
Total current liabilities		157,000
Long-term liabilities:
Note payable	$ 100,000
Bonds payable	300,000
Interest payable	20,000
Total long-term liabilities		420,000
Shareholders' equity:
Common stock	500,000
Retained earnings	68,000
Total shareholders' equity		568,000
Total liabilities and shareholders' equity		$1,145,000

In the course of your examination you uncover the following information pertaining to the balance sheet:

1. The company rents its facilities. The land that appears in the statement is being held for future sale.

2. The note receivable is due in 2015. The balance of $53,000 includes $3,000 of accrued interest. The next interest payment is due in July 2014.

3. The note payable is due in installments of $20,000 per year. Interest on both the notes and bonds is payable annually.

4. The company's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.

Required:

Identify and explain the deficiencies in the statement prepared by the company's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note.

Reference no: EM13974359

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