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Han's Hiking Corporation is planning to expand its current plant facilities and is in the process of obtaining a loan at City Bank. The bank has...

Han’s Hiking Corporation is planning to expand its current plant facilities and is in the process of obtaining a loan at City Bank. The bank has requested audited financial statements. Han’s financial statements have never been audited before. It has prepared the following comparative financial statements for the years ended December 31, 2008 and 2007.

Han’s Hiking Corporation
Comparative Balance Sheets
December 31, 2008 and 2007

2008 2007
Assets
Current Assets:
Cash $602,500 $400,000
Accounts receivable 980,000 740,000
Allowance for bad debts (92,500) (45,000)
Inventory 517,500 505,000
Total current assets $2,007,500 $1,600,000

Plant assets:
Property, plant, & equipment $417,500 $423,750
Accumulated depreciation (304,000) (266,000)
Total plant assets $113,500 $157,750
Total assets $2,121,000 $1,757,750

Liabilities and Stockholders’ Equity
Liabilities:
Accounts payable $303,500 $490,250
Stockholders’ Equity:
Common stock, par value $25: authorized, 30,000 shares;
issued and outstanding 26,000 shares $650,000 $650,000
Retained earnings 1,167,500 617,500
Total stockholders’ equity $1,817,500 $1,267,500
Total liabilities and stockholders’ equity $2,121,000 $1,757,750

Han’s Hiking Corporation
Comparative Income Statements
For the Years Ended December 31, 2008 and 2007

2008 2007
Sales $2,500,000 $2,250,000
Cost of goods sold 1,075,000 987,500
$1,425,000 $1,262,500
Operating expenses 575,000 512,500
General and administrative expenses 300,000 262,500
$875,000 $775,000
Net income $550,000 $487,500

The following facts were uncovered during the audit.
a) On January 20, 2007, Han’s had charged a 5-year fire insurance premium to expense. The total premium amounted to $15,500.

b) Over the last two years, the amount of loss due to bad debts has steadily decreased. Han’s has decided to reduce the amount of bad debt expense from 2% to 1.5% of sales, beginning with 2008. (A charge of 2% has already been made for 2008.)

c) The inventory account (maintained on a periodic basis) has been in error the last two years. The errors were as follows:

2007 Ending inventory overstated by $37,750
2008 Ending inventory overstated by $49,500
d) A machine costing $75,000, purchased on January 4, 2007, was incorrectly charged to operating expense. The machine has a useful life of 10 years and a residual value of $12,500. The straight-line depreciation method is used by Han’s.

Requirements:
1) Prepare the journal entries to correct the books at December 31, 2008. The books for 2008 have not been closed. (Ignore income taxes).

2) Prepare the comparative balance sheet and income statement for the years ended December 31, 2007 and 2008.

3) Journal entries and financial statements must be typed, any font style, 10 point font or larger. Financial statement format must be similar to the 2008/2007 unaudited financial statements provided in this problem.
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2) Comparative Balance Sheet and Income Statement
Han's Hiking Corporation
Comparative Balance Sheets
December 31, 2008 and 2007 1) Journal Entries
2008 Assets
Current Assets
Cash
Accounts...

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