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Unformatted text preview: eginning retained earnings $ 440,000 Plus: Net income 58,800 $ 498,800 Less: Dividends 10,000 Ending retained earnings $ 488,800 HAGEN CORPORATION Balance Sheet January 31, 20X6 Assets Cash $ 152,800 Accounts receivable 120,000 Land 680,000 Total assets $ 952,800 Liabilities Accounts payable $ 184,000 Loan payable 80,000 Total liabilities $ 264,000 Stockholders’ equity Capital stock $ 200,000 Retained earnings 488,800 Total stockholders’ equity 688,800 Total liabilities and equity $ 952,800 Download free eBooks at bookboon.com 49 Accounting Cycle Exercises II Problem 8 Problem 8 Mont Blanc Corporation is a small business operating in a state where a tax on income is contrary to the state’s constitution. In an effort to raise revenue, the state has imposed a tax on business receipts for services provided to customers (total revenues, whether collected during the period or not). The tax is equal to 1% of revenues in excess of $300,000. Mont Blanc prepared its state tax return by adding up the total deposits to the company’s bank account during the year. Total deposits were $1,240,000, and the company paid taxes of $9,400 (($1,240,000 $300,000) X 1%). Assume you are an auditor for the state, and Mont Blanc has been randomly selected for a routine review. You immediately find that the company does not maintain a typical journal/ledger system, and is fundamentally clueless about proper accounting procedures. You have discovered the following limited information as part of your examination: Fact 1 Total deposits included $450,000 that resulted from issuing shares to stockholders. Fact 2 The total deposits included $75,000 of interest income on investments. Fact 3 The total deposits included $2,700 that was the result of a bank error. The bank subsequently discovered the error, and removed the funds from Moncrief’s account. Fact 4 Mont Blanc provides some services for cash, and portions of that money are never deposited to a bank. The company maintains a cash receipts book and you have determined that $74,100 was collected from customers but never deposited. Fact 5 Bank deposits during the period included a $3,600 refund check from a vendor relating to an overpayment for supplies. Fact 6 The company deposits included $42,000 that was the result of a refund of an overpayment of federal income taxes. Fact 7 During the year, Mont Blanc collected a customer deposit toward a future contract. This $30,000 advance was deposited and subsequently refunded when both parties mutually agreed to cancel the contract. Fact 8 Mont Blanc has many customers for which services are provided on account. As of the beginning of the year, the balance due from customers was $390,000. By the end of the year, accounts receivable had grown to $1,170,000. Mont Blanc has never experienced a problem with non-payment, and all customers pay their accounts in full within 90 days of a transaction. Download free eBooks at bookboon.com 50 Accounting Cycle Exercises II Problem 8: Worksheet a...
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