Problem

Using Financial Reports: Identifying and Correcting Deficiencies in an Income Statement L0...

Using Financial Reports: Identifying and Correcting Deficiencies in an Income Statement L01 and Balance Sheet

Performance Corporation was organized on January 1,2009. At the end of 2009, the company had not yet employed an accountant; however, an employee who was “good with numbers” prepared the following statements at that date:

PERFORMANCE CORPORATION December 31,2009
Income from sales of merchandise	$175,000
Total amount paid for goods sold during 2006	(90,000)
Selling costs	(25,000)
Depreciation (on service vehicles used)	(10,000)
Income from services rendered	52,000
Salaries and wages paid	(62,000)

PERFORMANCE CORPORATION December 31,2009
Resources
Cash		$ 32,000
Merchandise inventory (held for resale)		42.000
Service vehicles		50,000
Retained earnings (profit earned in 2009)		30,000
Grand total		$154,000
Debts
Payables to suppliers		$ 22,000
Note owed to bank		25,000
Due from customers		13,000
Total		$ 60,000
Supplies on hand (to be used in rendering services)	$15,000
Accumulated depreciation[1] (on service vehicles)	10,000
Contributed capital, 6,500 shares	65,000
Total		90,000
Grand total		$150,000

Required:

1. List all deficiencies that you can identify in these statements. Give a brief explanation of each one.

2. Prepare a proper income statement (correct net income is $30,000 and income tax expense is $10,000) and balance sheet (correct total assets are $142,000).