In the first Case you had the opportunity to review the financial statements of two companies and make some comparisons. This course is not about preparing financial statements, but some practice helps explain the concepts and solidifying the understanding of basic concepts. As part of this first SLP, youll have the opportunity to acquire some hands on experience by creating a simple income statement and balance sheet. You will use the information provided below for Costa Company for this application. Below find a working trial balance for Costa Company. This format is often used during the preparation phase of the financial statements since it provides a good overview.
Your task is to prepare an income statement and a balance sheet in good format after adjusting for the two errors below.
• A physical count of inventory indicates $70,500 on hand.
• Theres a check for $5,000 from a customer that has not been recorded in the working trial balance. The sale was never recorded in the first place, so the transaction relating to this sale is missing.
1. Describe the effect of the errors on the income statement and balance sheet.
2. Is this company profitable? How do you determine whether or not this is the case.
3. Is the company in a solid financial position? (Comment on balance sheet.)