prepare a revised balance sheet, Financial Accounting

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#questionBroadway Scripts is a service-type enterprise in the entertainment field, and its manager, Joe Numbers, has only a limited knowledge of accounting. Joe prepared the following balance sheet, which, although arranged satisfactorily, contains certain errors with respect to such concepts as the business equity and the asset valuation. Joe owns all of the corporation’s outstanding stock.

Balance Sheet
November 30, 2002
Assets Liabilities & Owner’s Equity
Cash $ 4,100 Liabilities:
Notes Receivable 3,000 Notes Payable $ 70,000
Accounts Receivable 2,740 Accounts Payable 36,210
Land 80,000 Total Liabilities $106,210
Building 61,850 Owner’s Equity:
Office Furniture 9,220 Capital Stock 10,000
Other Assets 24,000 Retained Earnings 68,700
Total $184,910 Total $184,910

In discussion with Joe and by inspection of the accounting records, you discover the following facts:
1. The amount of cash, $4,100, includes $3,000 in the company’s bank account, $520 on hand in the company’s safe, and $580 in Joe’s personal savings account.
2. One of the notes receivable in the amount of $750 is an IOU that Joe received in a poker game several years ago. The IOU is signed by “J.R.,” whom Joe met at the game but has not heard from since.
3. Office furniture includes $3,000 for a Persian rug for the office purchased on November 25. The total cost of the rug was $10,000. The business paid $2,900 in cash and issued a note payable to Mohair Carpet for the balance due ($7,000). As no payment on the note is due until January, this debt is not included in the liabilities above.
4. Also included in the amount for office furniture is a computer that cost $1,200 but is not on hand because Joe donated it to a local charity.
5. The “Other Assets” of $24,000 represent the total amount of income taxes Joe has paid the federal government over a period of years. Joe believes the income tax law to be unconstitutional, and a friend who attends law school has promised to help Joe recover the taxes paid as soon as he passes the bar exam.
6. The asset “Land” was acquired at a cost of $25,000 but was increased to a valuation of $60,000 when a friend of Joe offered to pay that much for it if Joe would move the building off the lot.
7. The accounts payable include business debts of $31,400 and the $4,810 balance owed on Joe’s personal MasterCard.

a. Prepare a corrected balance sheet at November 30, 2002.
b. For each of the seven numbered items above, use a separate numbered paragraph to explain whether the treatment followed by Joe is in accordance with generally accepted accounting principles.

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