A year out of college, you have $10,000 to invest. A friend has started Flowers Unlimited, Inc., and he asks you to invest in his company. You obtain the company’s financial statements, which are summarized at the end of the first year as follows:

Visits with your friend turn up the following facts:
a. Flowers Unlimited delivered $140,000 of services to customers during 2018 and collected $100,000 from customers for those services.

b. Flowers Unlimited recorded a $50,000 cash payment for software as an asset. This cost should have been an expense.

c. To get the business started, your friend borrowed $10,000 from his parents at the end of 2017. The proceeds of the loan were used to pay salaries for the first month of 2018. Because the loan was from his parents, your friend did not reflect the loan or the salaries in the accounting records.

Requirements

1. Prepare corrected financial statements.

2. Use your corrected statements to evaluate Flowers Unlimited’s results of operations and financial position. (Challenge)

3. Will you invest in Flowers Unlimited? Give your reason. (Challenge)

Transcribed Image Text:

A1 Flowers Unlimited, Inc. Income Statement Year Ended December 31, 2018 2 Revenues 3 Expenses 4 Net income 100,000 80,000 20,000 A1 Flowers Unlimited, Inc. Balance Sheet December 31, 2018 2 Cash 3 Other assets 4 Total assets 6,000 Liabilities 100,000 Stockholders' equity $ 106,000 Total liabilities and stockholders' equity 60,000 46,000 106,000 %24