Reference no: EM133276052

Below is an Unadjusted Income Statement and an Unadjusted Balance Sheet for the first year of a hypothetical company whose year ended December 31, 2021.  Additional information is below to allow you to prepare both an Adjusted Income Statement and an Adjusted Balance sheet.  The information in (3) through (6) requires you to make decisions under the assumption aggressive manager (report the highest net income (lowest expenses)) 

Unadjusted INCOME STATEMENT year ended December 31, 2021
Sales Revenue	2,900,000
Cost of Goods Sold	-
Gross Profit	2,900,000
Operating expenses	348,000
Insurance expense	-
Uncollectible accounts expense	-
Depreciation expense	-
Warranty expense	-
Amortization expense/patent impairment loss	-
Income from operations	2,552,000
Non-operating expenses: Interest expense	-
Net income before taxes	2,552,000
Taxes (21% combined federal and state Taxes)	535,920
Net Income	2,016,080

Unadjusted BALANCE SHEET at December 31, 2021
ASSETS
Current Assets
Cash	20,000
Accounts Receivable (less allow. for uncollectible _______)	321,000
Note Receivable	100,000
Inventory	2,320,000
Prepaid Insurance	14,000
Total Current Assets	2,775,000
Long-Term Assets
Property, Plant and Equipment (less accum. Depr.________)	860,000
Total Long-Term Assets	860,000
TOTAL ASSETS	3,635,000
LIABILITIES
Current Liabilities
Accounts Payable	29,000
Interest Payable	-
Warranty Liability	-
Income Tax Payable	535,920
Total Current Liabilities	564,920
Long-term note payable	100,000
Total Liabilities	664,920
STOCKHOLDERS' EQUITY
Common Stock, No Par	954,000
Retained Earnings	2,016,080
Total Stockholders' Equity	2,970,080
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY	3,635,000

Below is additional information please correct as if you are an aggressive manager you would need to fix the financial statements in order for them to be in conformity with GAAP):

1) Prepaid Insurance was paid on January 1, 2021.  The policy offers coverage for two years.

2) A Note Payable for $100,000 was obtained on September 1, 2021.  The interest rate is 8%.  All principal and interest are due on September 1, 2023.

The second part provides you with information to adjust the financial statements based on flexibility within GAAP ( aggressive manager):

3) The gross amount of Accounts Receivable totaled $321,000.  (The firm's credit policy requires payment within 60 days). Industry guidelines indicate uncollectible accounts are generally in the range of 1% to 12% of the ending accounts receivable balance. (Note that management often sets percentages based on an aging schedule, not just on the total accounts receivable balance, but for ease of presenting solutions we will use these percentages for total accounts receivable balance).

4) Most products sold include a one-year warranty.  Industry guidelines indicate warranty costs represent about 1-3% of sales revenue.  Therefore a warranty liability and expense (to match against the sales revenue already recorded must be made).  You can use the $2,900,000 unadjusted balance in sales revenue to make this entry.

5) Inventory costs are as follows:  An entry needs to be made to decrease the inventory (asset amount) on the Balance Sheet and to increase the cost of goods sold (expense account) on the Income Statement using either LIFO or FIFO (two extremes).

Purchase Date	Units	Unit price	Total price
1/1/21	100,000	1.78	178,000
3/1/21	100,000	2.50	250,000
5/1/21	120,000	2.50	300,000
8/1/21	150,000	2.70	405,000
10/1/21	170,000	3.10	527,000
12/1/21	200,000	3.30	660,000
	840,000		2,320,000
Units sold	788,000
Units left	52,000

6) The company uses Straight-Line Depreciation for its Plant and Equipment.  Plant and Equipment costs consist of the following:

Building           710,000 (range 30 to 40 years)

Furniture         130,000 (range 10 to 20 years)

Computers         20,000 (range 2 to 5 years)

TOTAL           860,000

NOTE - AFTER YOU ADJUST THE FINANCIAL STATEMENTS FOR THE ABOVE 6 ENTRIES, you ALSO WILL NEED TO ADJUST THE INCOME TAX EXPENSE AMOUNT AND THE INCOME TAXES PAYABLE AMOUNT BASED ON YOUR NEW ADJUSTED NET INCOME NUMBER.