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, 2011
Assets
Current Assets:
- Cash $137,000
- Accounts Receivable, net 80,000
- Note Receiveable 53,000
- Inventories 240,000
- Investments 66,000
- Total Current Assets 576,000
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 Liablilites 157,000
Long-term liabilites:
- Note payable $100,000
- Bonds payable 300,000
- Interest payable 20,000
- Total long-term liabilites 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 receiveable is due in 2013. The balance os $53,000 includes $3,000 of accrued interest. The next interest payment is due July 2012.
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. Managment 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 of in a note.