ACC 303 Comprehensive Problem – Ingalls Corporation

ACC 303 comprehensive problem questioningalls corporation is in the process of negotiating a loan for expansion purposes. the books and records have never been audited, and the bank has requested that an audit be performed. ingalls has prepared the following comparative financial statements for the years ended december 31, 20×4, and 20×3. ingalls corporation is in the athletic sportswear industry and their business is merchandising. you have been asked to review the statements to ensure its accuracy and freedom from errors and omissions. during your audit, some of the findings included the following facts:an analysis of collections and losses on accounts receivable during the past 2 years indicated a drop in anticipated losses because of bad debts. after consultation with management, it was agreed that the loss experience rate should be reduced from the recorded 2% to 1% of sales beginning with the year ended december 31, 20×4.an analysis of the available –for-sale securities revealed that this portfolio consisted entirely of short-term investments in marketable equity securities that were acquired in 20×3. the total market valuation for these investments as of the end of the year was as follows: december 31, 20×3 $ 81,000.00, and december 31, 20×4 $ 62,000.00. management intends to sell these securities if the need arises.the merchandise inventory at december 31, 2013, was overstated by $ 4,000.00, and the merchandise inventory at december 31, 20×4 was overstated by $ 6,100.00.on january 2, 20×3, equipment costing $ 12,000.00 (with an estimated life of 10 years and residual value of $1,000.00) was incorrectly charged to operating expenses. ingalls records depreciation via the straight line method. in 20×4, fully depreciated equipment (with no residual value) that originally cost $ 17,500.00 was sold at scrap value of $ 2,500.00. ingalls credited the proceeds of $ 2,500.00 to the equipment account.an analysis of 20×3 operating expenses revealed that ingalls charged the following item to expense: a 3 year insurance premium in the amount of $ 2,700.00 that started and was recorded on january 2, 20×3.prepare any entries to correct the books as of december 31, 20×4. the books for 20×4 have not yet been closed.be sure to review the existing statements for any other omissions and errors.prepare in proper and good form the multi-step income statement, statement of retained earnings, and the classified balance sheet for 20×3 and 20×4.each statement should be on a separate worksheet and all worksheets should be linked (income from the income statement is linked to the statement of retained earnings). work should be completed using microsoft excel. all worksheets should be in printable form.use the “t” account form to track entries.after identifying the errors and correcting the books, prepare a memorandum microsoft word document addressing the ceo and board of directors of ingalls summarizing the effect of the errors, changes and corrected statements. each of the corrections/changes should be in a separate paragraph.submit your work to the appropriate link in the weekly folder in blackboard.ingalls corporationcomparative balance sheetas of december 31, 20×4 and 20×3 december 31, 20×4 december 31, 20x3assetscurrent assets:cash $ 163,000 $ 82,000accounts receivables 392,000 296,000allowance for doubtful accounts (37,000) (18,000)investment in available –for-sale securities 78,000 78,000inventory 207,000 202,000 total current assets $ 803,000 $ 640,000property, plant & equipment equipment $ 167,000 $ 169,500 accumulated depreciation (121,600) (106,400)total property, plant and equipment $ _45,400 $ _63,100_ total assets $ 848,400 $ 703,100 liabilities and shareholders’ equityliabilities: accounts payable $ 121,400 $196,100shareholders’ equity common stock, par value$ 10, authorize50,000 shares issued and outstanding 20,000shares $ 260,000 $ 260,000retained earnings 467,000 247,000 total shareholders’ equity $ 727,000 $ 507,000total liabilities and shareholders’ equity $ 848,000 $ 703,100 statement of income for the 2 years ended december 31 shown on next page ingalls corporation statement of income for the years ended december 31, 20×4 20x3sales $ 1, 000,000 $ 900,000cost of sales 430,000 395,000 gross profit $ 570,000 $ 505,000operating expenses 210,000 205,000administrative expenses 140,000 105,000total operating expenses $ 350,000 $ 310,000net income $ 220,000 $ 195,000