Correcting capital balances. Rexcam is a partnership owned by Wilson, Watts, and Franklin that manufactures special machine tools used primarily in injection molding applications. The partnership had...

Correcting capital balances. Rexcam is a partnership owned by Wilson, Watts, and Franklin that manufactures special machine tools used primarily in injection molding applications. The partnership had operated very profitably for the first five years of existence. However, in the last two years, 2013 and 2014, the company has been challenged by foreign competition and pricing pressures. During this time, Franklin, acting as the chief financial officer, began to have difficulty dealing with the financial pressures at work and issues in his personal life. Franklin had a fatal heart attack in early January of 2015, and the partnership agreement required the partnership to pay a deceased partner’s estate: (a) five times the deceased partner’s average annual share of profit based on the three years prior to death plus (b) 50% of their capital balance as of the year-end prior to date of death. The amount due to the deceased partner’s estate was to be determined by an outside independent accountant.

Assuming you have been retained as the outside accountant, the following errors and/or irregularities associated with Franklin’s accounting for the company have come to your attention:

1. During 2013 and 2014, sales of $25,000 and $75,000, respectively, were recorded as being made to Alcor Corporation. Alcor is a fictitious company that was set up by Mr. Franklin.