Jefferson Jerome is interested in purchasing Art Specialists, Inc. , an auction
house. The company receives the right to sell art, but not to purchase the art
themselves, for a 5% commission. Art Specialists rents office space and holds its
auctions at local hotels.
Art Specialists, Inc.
Unadjusted Trial Balance
|
December 31, 2009 Cash |
$ 65,000.00 |
||
|
Accounts receivable |
$ 36,000.00 |
||
|
Supplies |
$ 8,000.00 |
||
|
Equipment |
$ 53,000.00 |
||
|
Accumulated Depreciation |
$ 14,500.00 |
||
|
Accounts payable |
$ 5,600.00 |
||
|
Dividends |
$ 50,000.00 |
||
|
Capital stock |
$ 25,000.00 |
||
|
Retained earnings |
$ 84,900.00 |
||
|
Commission income |
$ 250,000.00 |
||
|
Rent Expense |
$ 20,000.00 |
||
|
Wages Expense |
$ 70,000.00 |
||
|
Auction Expenses |
$ 56,000.00 |
||
|
Depreciation Expenses |
$ 7,000.00 |
||
|
Membership Expenses |
$ 6,000.00 |
||
|
Supplies Expense |
$ 9,000.00 |
||
|
TOTAL |
$ 380,000.00 |
$ 380,000.00 |
|
As Jefferson s accountant, you have received the trial balance above as well as
the general ledger. The review has found the following errors:
Year end bank reconciliation showed that the balance should be $40,000.
A customer should have been billed for $25,000, but it was recorded as a
cash payment of the commission income.
Membership expenses are not related to the business and should be
shown as a dividend to shareholder.
Depreciation expense should be $3,500 for the year.
Supplies expenses failed to record $2,000 in packing supplies used during
the year.
Accounts receivables that have not been billed $10,000.
Required:
1. Record the correcting entry.
2. Prepare financial statements
3. Current owners want $200,000 for the business. Jefferson does not want to pay more than Net Worth x 1.5. Should he buy?