During the course of your examination of the financial
statements of the Hales Corporation for the year ended December 31,
2021, you discover the following:
- An insurance policy covering three years was purchased on
January 1, 2021, for $8,100. The entire amount was debited to
insurance expense and no adjusting entry was recorded for this
item.
- During 2021, the company received a $975 cash advance from a
customer for merchandise to be manufactured and shipped in 2022.
The $975 was credited to sales revenue. No entry was recorded for
the cost of merchandise.
- There were no supplies listed in the balance sheet under
assets. However, you discover that supplies costing $1,075 were on
hand at December 31.
- Hales borrowed $30,000 from a local bank on October 1, 2021.
Principal and interest at 12% will be paid on September 30, 2022.
No accrual was recorded for interest.
- Net income reported in the 2021 income statement is $45,000
before reflecting any of the above items.