Limitations of Financial Statements Limits, Ltd. had the following financial statements for the fiscal year ending December 31, 2004 (the statement of stockholders” equity and the statement of cash flows are not shown).
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Limits, Ltd. |
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Sales revenue |
$20,000 |
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Operating expenses: |
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Cost of sales |
$1,000 |
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Wages expense |
800 |
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Advertising expense |
100 |
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Depreciation expense |
300 |
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Research and development expense |
300 |
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Total operating expense |
2,500 |
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Operating income |
17,500 |
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Other expenses: |
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Interest expense |
500 |
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Income before taxes |
17,000 |
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Income tax |
5,100 |
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Net income |
$11,900 |
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Limits, Ltd. |
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Assets |
Liabilities and stockholders” equity |
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Current assets: |
Current liabilities: |
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Cash |
$2,300 |
Accounts payable |
$3,000 |
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Accounts receivable |
8,000 |
Wages payable |
7,600 |
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Inventory |
15,000 |
Interest payable |
900 |
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Total current assets |
25,300 |
Total current liabilities |
11,500 |
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Property, plant and equipment: |
Notes payable, long term |
9,000 |
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Equipment |
21,000 |
Total liabilities |
20,500 |
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Accumulated depreciation |
8,000 |
Stockholders” equity: |
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Buildings |
90,000 |
Owners” investment |
9,700 |
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Accumulated depreciation |
85,000 |
Retained earnings |
13,100 |
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PP&E |
18,000 |
Total stockholders” equity |
22,800 |
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Total liabilities and |
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Total assets |
$43,300 |
stockholders” equity |
$43,300 |
Required The text lists several limitations of financial statements. Using the financial statements given here, identify as many examples of limitations or items that relate to limitations of financial statements as you can.