RECOMMENDED!!You have accepted a job as the Controller of a start-up

  

Scenario: You have accepted a job as the Controller of a start-up company— a consulting firm, called Smith Steele Consulting. Smith is an excellent consultant, but not a good accountant. He has attempted to prepare the first month’s financial statements; however, the statements do not balance. The financial statements are a good starting point, but your job is to correct the errors. Identify two errors in the Balance Sheet, two errors in the Income Statement, one error in the Statement of Owner’s Equity, and two errors in the Statement of Cash Flows. You will want to keep in mind all that you have learned in terms of the items on financial statements which are duplicated and flow from one statement to another. Prepare corrected financial statements referencing GAAP using Microsoft Excel.SMITH STEELE CONSULTINGBalance SheetAugust 31, 2011 Assets LiabilitiesCurrent assets: Current liabilities: Cash………………………….. $ 21,300 Accounts payable…….. $ 1,250 Accounts receivable……. 3,800 Prepaid rent……………. 2,050 Supplies……………………… 875 Unearned fees………….. 1,150 Salaries payable…………. 150 Total liabilities……… …$ 4,450 Prepaid insurance………. 1,670 Total current assets …$ 27,795Property, plant, and equipment:…………………. Owner’s Equity Office equipment……….. $ 21,250 Sheila Shaw, capital……. 47,720 Less accum. depr……….. 675 Total Property, plant, and equipment………… 20,575 Total liabilities andTotal assets…………………. $ 48,370 owner’s equity…………. $ 52,170SMITH STEELE CONSULTINGIncome StatementFor the Month Ended August 31, 2011Fees earned………………………………………………………………………… $ 24,325Expenses: Salary expense…………………………………………………………….. $1,550 Rent expense……………………………………………………………….. 1,200 Supplies expense…………………………………………………………. 1,250 Insurance expense……………………………………………………….. 1,000 Miscellaneous expense…………………………………………………. 715 Interest expense………………………………………………………….. 65 Bad Debt expense………………………………………………………… 150 Repairs and Maintenance……………………………………………. 200 Utilities expense………………………………………………………….. 150 Payroll Tax expense…………………………………………………….. 125 Office expense…………………………………………………………….. 525 Total expenses…………………………………………………………. 6,930Net income…………………………………………………………………………. $ 17,395SMITH STEELE CONSULTINGStatement of Owner’s EquityFor the Month Ended August 31, 2011Sheila Shaw, capital, August 1, 2007…………………………………… $ 0Additional investments during the month……………………………. 36,000Total………………………………………………………………………………….. $ 36,000Net income for the month…………………………………………………… $ 17,395Less withdrawals……………………………………………………………….. 5,000Increase in owner’s equity………………………………………………….. 12,395Sheila Shaw, capital, August 31, 2007…………………………………. $ 48,395SMITH STEELE CONSULTINGStatement of Cash FlowsFor the Month Ended August 31, 2011CASH FLOWS FROM OPERATING ACTIVITIES: Net income for the month:…………………………………………… $17,395 Adjustment for depreciation………………………………… 675 Cash provided by operating activities………………………….. 18,070 (Increase) in working capital items Accounts receivable…………………………………………………. (3,800) Supplies…………………………………………………………………… (875) Prepaid expenses……………………………………………………… 3,720 Accounts payable…………………………………………………….. 1,250 Salaries payable………………………………………………………. 150 Unearned fees………………………………………………………….. 1,150Cash flows from operating activities……………………………………. $18,990CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of office equipment……………………………………. (21,250)Cash flows from investing activities…………………………………….. $(21,250)CASH FLOWS FROM FINANCING ACTIVITIES: Advances from shareholder (net of withdrawals)…………. 31,000Cash flows from financing activities……………………………………. $31,000Net increase in cash……………………………………………………………. $28,740CASH-BEGINNING OF PERIOD……………………………………… 0CASH-END OF PERIOD…………………………………………………… $21,300