Adjustments in financial statements Case Study Case Summary: Several years ago, the brother opened MA Repairs with small initial investments. Later for the expansion, the brother submitted a loan application to the bank and included the most recent financial statements, prepared by the part time book keeper. After reviewing the financial statements the loan officer enquired whether accrual basis of accounting was used to record revenues and expenses; then the brother responded that they maintained the books of accounts as per accrual basis of accounting. Further the loan officer enquired whether or not the accounts were adjusted prior to the preparation of the statements. To this the brother replied a no; since the accounts had not been adjusted. To explain: The reasons for which loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements.

Question

Want to see the full answer?

Answer 1

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3.3CP

a.

To determine

Adjustments in financial statements Case Study

Case Summary:

Several years ago, the brother opened MA Repairs with small initial investments. Later for the expansion, the brother submitted a loan application to the bank and included the most recent financial statements, prepared by the part time book keeper. After reviewing the financial statements the loan officer enquired whether accrual basis of accounting was used to record revenues and expenses; then the brother responded that they maintained the books of accounts as per accrual basis of accounting. Further the loan officer enquired whether or not the accounts were adjusted prior to the preparation of the statements. To this the brother replied a no; since the accounts had not been adjusted.

To explain: The reasons for which loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements.

b.

To determine

To indicate: The possible accounts that might need to be adjusted.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Flo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment and fixture additions. Choi’s banker requires her to submit semiannual financial statements so he can monitor the financial health of her business. He has warned her that if profit margins erode, he might raise the interest rate on the borrowed funds to reflect the increased loan risk from the bank’s point of view. Choi knows profit margin is likely to decline this year. As she prepares year-end adjusting entries, she decides to apply the following depreciation rule: All asset additions are considered to be in use on the first day of the following month. (The previous rule assumed assets are in use on the first day of the month nearest to the purchase date.) Required 1. Identify decisions that managers like Choi must make in applying depreciation methods. 2. Is Choi’s rule an ethical…

Flo Choi owns a small business and manages its accounting. Her company just finished a year in which a large amount of borrowed funds was invested in a new building addition as well as in equipment and fixture additions. Choi’s banker requires her to submit semiannual financial statements so he can monitor the financial health of her business. He has warned her that if profit margins erode, he might raise the interest rate on the borrowed funds to reflect the increased loan risk from the bank’s point of view. Choi knows profit margin is likely to decline this year. As she prepares year-end adjusting entries, she decides to apply the following depreciation rule: All asset additions are considered to be in use on the first day of the following quarter. (The previous rule assumed assets are in use on the first day of the month nearest to the purchase date.) Discuss the following: Identify decisions that managers like Choi must make in applying depreciation methods. Is Choi’s rule an…

Melody Lane Music Company was started by John Ross early in 2018. Initial capital was acquired by issuingshares of common stock to various investors and by obtaining a bank loan. The company operates a retail storethat sells records, tapes, and compact discs. Business was so good during the first year of operations that John isconsidering opening a second store on the other side of town. The funds necessary for expansion will come froma new bank loan. In order to approve the loan, the bank requires financial statements.John asks for your help in preparing the balance sheet and presents you with the following information for theyear ending December 31, 2018:a. Cash receipts consisted of the following:From customers $360,000From issue of common stock 100,000From bank loan 100,000b. Cash disbursements were as follows:Purchase of inventory $300,000Rent 15,000Salaries 30,000Utilities 5,000Insurance 3,000Purchase of equipment and furniture 40,000c. The bank loan was made on March 31, 2018. A…

Answer 2

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3.3CP

a.

To determine

Adjustments in financial statements Case Study

Case Summary:

Several years ago, the brother opened MA Repairs with small initial investments. Later for the expansion, the brother submitted a loan application to the bank and included the most recent financial statements, prepared by the part time book keeper. After reviewing the financial statements the loan officer enquired whether accrual basis of accounting was used to record revenues and expenses; then the brother responded that they maintained the books of accounts as per accrual basis of accounting. Further the loan officer enquired whether or not the accounts were adjusted prior to the preparation of the statements. To this the brother replied a no; since the accounts had not been adjusted.

To explain: The reasons for which loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements.

b.

To determine

To indicate: The possible accounts that might need to be adjusted.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 3

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3.3CP

a.

To determine

Adjustments in financial statements Case Study

Case Summary:

Several years ago, the brother opened MA Repairs with small initial investments. Later for the expansion, the brother submitted a loan application to the bank and included the most recent financial statements, prepared by the part time book keeper. After reviewing the financial statements the loan officer enquired whether accrual basis of accounting was used to record revenues and expenses; then the brother responded that they maintained the books of accounts as per accrual basis of accounting. Further the loan officer enquired whether or not the accounts were adjusted prior to the preparation of the statements. To this the brother replied a no; since the accounts had not been adjusted.

To explain: The reasons for which loan officer suspected that the accounts had not been adjusted prior to the preparation of the statements.

b.

To determine

To indicate: The possible accounts that might need to be adjusted.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Answer 4

Question

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

Chapter 3, Problem 3.3CP

a.

To determine