Your firm has been engaged to examine the financial statements of Teal Corporation for the year 2020. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2015. The client provides you with the information. Teal Corporation Balance Sheet December 31, 2020 Assets Liabilities Current assets $1,888,000 Current liabilities $970,000 Other assets 5,114,480 Long-term liabilities 1,471,000 Stockholders’ equity 4,561,480 $7,002,480 $7,002,480 An analysis of current assets discloses the following. Cash (restricted in the amount of $301,000 for plant expansion) $582,000 Investments in land 185,000 Accounts receivable less allowance of $29,000 479,000 Inventories (LIFO flow assumption) 642,000 $1,888,000 Other assets include: Prepaid expenses $62,000 Plant and equipment less accumulated depreciation of $1,411,000 4,069,000 Cash surrender value of life insurance policy 84,000 Unamortized bond discount 51,480 Notes receivable (short-term) 159,000 Goodwill 248,000 Land 441,000 $5,114,480 Current liabilities include: Accounts payable $518,000 Notes payable (due 2023) 159,000 Estimated income taxes payable 146,000 Premium on common stock 147,000 $970,000 Long-term liabilities include: Unearned revenue $495,000 Dividends payable (cash) 196,000 8% bonds payable (due May 1, 2025) 780,000 $1,471,000 Stockholders’ equity includes: Retained earnings $2,701,480 Common stock, par value $10; authorized 200,000 shares, 186,000 shares issued 1,860,000 $4,561,480 The supplementary information below is also provided. 1. On May 1, 2020, the corporation issued at 93.40, $780,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization. 2. The bookkeeper made the following mistakes. a. In 2018, the ending inventory was overstated by $184,000. The ending inventories for 2019 and 2020 were correctly computed. b. In 2020, accrued wages in the amount of $220,000 were omitted from the balance sheet, and these expenses were not charged on the income statement. c. In 2020, a gain of $173,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings. 3. A major competitor has introduced a line of products that will compete directly with Teal’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor’s line will be of comparable quality but priced 50% below Teal’s line. The competitor announced its new line on January 14, 2021. Teal indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs. 4. You learned on January 28, 2021, prior to completion of the audit, of heavy damage because of a recent fire to one of Teal’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail. Analyze the above information to prepare a corrected balance sheet for Teal in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings. (List Current Assets in order of liquidity.)

Your firm has been engaged to examine the financial statements of Teal Corporation for the year 2020. The bookkeeper who maintains the financial records has prepared all the unaudited financial...

Your firm has been engaged to examine the financial statements of Teal Corporation for the year 2020. The bookkeeper who maintains the financial records has prepared all the unaudited financial statements for the corporation since its organization on January 2, 2015. The client provides you with the information.

Teal Corporation Balance Sheet December 31, 2020
Assets	Liabilities
Current assets	$1,888,000	Current liabilities	$970,000
Other assets	5,114,480	Long-term liabilities	1,471,000
		Stockholders’ equity	4,561,480
	$7,002,480		$7,002,480

An analysis of current assets discloses the following.
Cash (restricted in the amount of $301,000 for plant expansion)		$582,000
Investments in land		185,000
Accounts receivable less allowance of $29,000		479,000
Inventories (LIFO flow assumption)		642,000
		$1,888,000

Other assets include:
Prepaid expenses		$62,000
Plant and equipment less accumulated depreciation of $1,411,000		4,069,000
Cash surrender value of life insurance policy		84,000
Unamortized bond discount		51,480
Notes receivable (short-term)		159,000
Goodwill		248,000
Land		441,000
		$5,114,480

Current liabilities include:
Accounts payable		$518,000
Notes payable (due 2023)		159,000
Estimated income taxes payable		146,000
Premium on common stock		147,000
		$970,000

Long-term liabilities include:
Unearned revenue		$495,000
Dividends payable (cash)		196,000
8% bonds payable (due May 1, 2025)		780,000
		$1,471,000

Stockholders’ equity includes:
Retained earnings		$2,701,480
Common stock, par value $10; authorized 200,000 shares, 186,000 shares issued		1,860,000
		$4,561,480

The supplementary information below is also provided.

1.	On May 1, 2020, the corporation issued at 93.40, $780,000 of bonds to finance plant expansion. The long-term bond agreement provided for the annual payment of interest every May 1. The existing plant was pledged as security for the loan. Use the straight-line method for discount amortization.
2.	The bookkeeper made the following mistakes.
	a.	In 2018, the ending inventory was overstated by $184,000. The ending inventories for 2019 and 2020 were correctly computed.
	b.	In 2020, accrued wages in the amount of $220,000 were omitted from the balance sheet, and these expenses were not charged on the income statement.
	c.	In 2020, a gain of $173,000 (net of tax) on the sale of certain plant assets was credited directly to retained earnings.
3.	A major competitor has introduced a line of products that will compete directly with Teal’s primary line, now being produced in a specially designed new plant. Because of manufacturing innovations, the competitor’s line will be of comparable quality but priced 50% below Teal’s line. The competitor announced its new line on January 14, 2021. Teal indicates that the company will meet the lower prices that are high enough to cover variable manufacturing and selling expenses, but permit recovery of only a portion of fixed costs.
4.	You learned on January 28, 2021, prior to completion of the audit, of heavy damage because of a recent fire to one of Teal’s two plants; the loss will not be reimbursed by insurance. The newspapers described the event in detail.

Analyze the above information to prepare a corrected balance sheet for Teal in accordance with proper accounting and reporting principles. Prepare a description of any notes that might need to be prepared. The books are closed and adjustments to income are to be made through retained earnings.

(List Current Assets in order of liquidity.)

Jun 10, 2022

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