Financial Statements Preparation of AlRass Corporation
Learning Objectives are:
- Demonstrate ability to critically analyze accounting issues and to apply accountingknowledge to solve problems, and
- Theability to work effectively within a
Project Title: “Financial Statements’ Preparation of AlRass Corporation”
Background:
At the end of 2020, AlRass Corporation’s computerized information systems experienced a serious malfunction. The information technology specialists along with the company’s accounting team were able to recover the following information:
The following account balances as of January 1, 2020:
|
(in Thousands of Dollars) |
Debits |
Credits |
|
Cash Supplies |
38,500 1,200 | |
|
Inventory |
38,000 | |
|
Prepaid rent |
22,000 | |
|
Machine |
7,000 | |
|
Accumulated depreciation |
200 | |
|
Salaries payable |
5,500 | |
|
Unearned rent revenue |
10,750 | |
|
Notes payable |
0 | |
|
Retained earnings |
1,750 |
The income statement for the year ending of December 31 2020 (amounts in thousands)
|
AlRass Corporation | |
|
Income Statement | |
|
For the Year Ended December 31 2020 | |
|
Sales revenue |
$54,250 |
|
Cost of goods sold |
31,000 |
|
Gross profit |
23,250 |
|
Operating expenses: | |
|
Salaries |
14,000 |
|
Supplies |
2,000 |
|
Rent |
3,000 |
|
Depreciation |
1,200 |
|
Bad debt |
1,950 |
|
Total operating expenses |
$22,150 |
|
Operating income |
1,100 |
|
Other income: | |
|
Rent revenue |
17,250 |
|
Net income |
$18,350 |
The team found the following statement of financial position. However, due to the malfunction, the statement has missing information and classification inaccuracies (amounts in thousands). The only additional piece of information that found was a receipt showing that the machines were purchased with cash.
|
AlRass Corporation | ||
|
Statement of Financial Position | ||
|
At December 31, 2020 | ||
|
Assets | ||
|
Current assets: | ||
|
Inventory |
29,000 | |
|
Supplies |
950 | |
|
Cash |
$42,650 | |
|
Accounts receivable |
$12,850 | |
|
Less: Reserve for accounts receivable |
2,450 |
10,400 |
|
Goodwill |
2,000 | |
|
Prepaid rent |
19,000 | |
|
Total current assets |
104,000 | |
|
Property and equipment: | ||
|
Land held for sale |
3,000 | |
|
Machines |
12,900 | |
|
Less: Depreciation reserve |
1400 |
11,500 |
|
Total assets |
$118,500 | |
|
Shareholders Equity and Liabilities | ||
|
Shareholders’ equity: | ||
|
Share capital |
50,000 | |
|
Unearned rent revenue |
400 | |
|
Retained earnings |
18,100 | |
|
Total shareholders’ equity |
$68,100 | |
|
Current liabilities: | ||
|
Accounts payable |
20,000 | |
|
Salaries payable |
13,000 | |
|
Foreign currency translation reserve |
10,000 | |
|
Note payable (Due in 2023) |
7,000 | |
|
Total current liabilities |
50,400 | |
|
Total shareholders’ equity and liabilities |
$118,500 | |
Required:
- Identifythe mistakes and classification inaccuracies in the above statement of financial position, and prepare the correct one.
- Do you agree or disagree with the following statement: “the matching principle meansthat revenues equal expenses.” How could violating the matching principle impact analysis of performance for the company?
- Preparethe full statement of cash flows for the period ending December 31, Using indirect method.
