Chapter 3, Problem 3.5BYP

Judgment Case 3–5

Balance sheet; errors

• LO3–2 through LO3–4

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

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

1. The company rents its facilities. The land that appears in the statement is being held for future sale.

2. The note receivable is due in 2020. The balance of $53,000 includes $3,000 of accrued interest. The next interest payment is due in July 2019.

3. The note payable is due in installments of $20,000 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.

Required:

Identify and explain the deficiencies in the statement 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.