Problem:
You have $5,000 to invest. A friend ask you to invest in her company. Here are the dot.com, inc. financial statements, which are summarized at the end of the first years as follows:
Dot.com income statement: dec. 31,2004
Revenues: $80,000
Expenses: 60,000
Net income: 20,000
Dot.com balance sheet: dec. 31,2004
Cash: 3,000 Liabilities: 30,000
Other assets: 67,000 Equity: 40,000
Total liabilities
Total assets: 70,000 And equity: 70,000
Visits with your friend turn up the following facts:
a. software costs of $25,000 were recorded as assets. These costs should have been expensed. Dot.com paid cash for these expenses and recorded the cash payment correctly
b. revenues and receivables of $10,000 were overlooked and omitted.
c. the company owes an additional $5,000 for TV ads that aired in December.
Questions
1. What is Dot. com's most pressing need?
2. Prepare corrected financial statements.
3. Use your corrected statements to evaluate Dot. com's results of operations and financial position.
4. Will you invest in Dot. Com? Explain.