Reference no: EM13356543

Identification of defiance's appears in Financial Statements.

You recently joined the internal auditing department of Kay Sportswear Corporation. As one of your first assignments, you are examining a balance sheet prepared by a staff accountant.

Kay Sportswear Corporation Balance Sheet At December 31, 2009
Assets
Current assets:
Cash		$220,000
Accounts receivable, net		340,000
Note receivable		80,000
Inventories		600,000
Prepaid expenses		40,000
Total current assets		$1,280,000
Other assets:
Land	$500,000
Buildings, net	2,056,000
Equipment, net	400,000
Investments	50,000
Patent	60,000
Total other assets		3,066,000
Total assets		$4,346,000
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable		$165,000
Salaries payable		75,000
Interest payable		45,000
Total current liabilities		285,000
Long-term liabilities:
Note payable	$300,000
Bonds payable	500,000
Unearned revenue	80,000
Total long-term liabilities		880,000
Shareholders' Equity:
Common Stock	$2,000,000
Retained earnings	1,181,000
Total shareholders' equity		3,181,000
Total liabilities and shareholder's equity	$4,346,000

In the course of your examination you uncover the following information pertaining to the balance sheet:

1. The land and buildings represent the corporate headquarters and manufacturing facilities.

2. The note receivable is due in 2011. The balance of $80,000 includes $5,000 of accrued interest. The next interest payment is due in July, 2010.

3. The note payable is due in installments of $50,000 per year. Interest on both the notes and bonds is payable annually.

4. The company's investments consist of marketable equity securities of other corporations. Management does not intend to liquidate any investments in the coming year.

5. Unearned revenue will be earned ratably (equally) over the next two years.

Required: Identify and explain the deficiencies in the balance sheet prepared by the company's accountant. Include in your answer items that require additional disclosure, either on the face of the statement or in a note. Your answer to this question may be prepared directly in the answer box.