The summary financial statements of Langford Landscaping Ltd. on December 31, 2020, are as follows:

The following errors were made by the inexperienced accountant on December 31, 2019, and were not corrected.

1. The inventory was overstated by $13,000.

2. A prepaid expense of $2,400 was omitted. (It was fully expensed in 2019.)

3. Accrued revenue of $2,500 was omitted. (It was recognized when cash was received in 2020.)

4. A supplier?s invoice for $1,700 for purchases made in 2019 was not recorded until 2020. On December 31, 2020, there were further errors:

5. The inventory was understated by $17,000.

6. A prepaid expense of $750 was omitted.

7. Accrued December 2020 salaries of $1,800 were not recognized.

8. Unearned income of $2,300 was recorded in the 2020 revenue.

9. In addition, it was determined that $20,000 of the accounts payable were long-term, and that a $500 dividend was reported as dividend expense and deducted in calculating net income.

The net income reported on the books for 2020 was $53,000.

Instructions

a. Finance Calculate the working capital, current ratio, and debt to equity ratio for Langford Landscaping Ltd. based on the original SFP information provided above. Round ratios to two decimal places.

b. Calculate the corrected net income for 2020.

c. Prepare a corrected SFP at December 31, 2020.

d. Finance Using the corrected data, recalculate the working capital and the ratios in part (a). Explain the resulting differences in the ratios as a result of the use of the corrected data.

Transcribed Image Text:

Langford Landscaping Ltd. Statement of Financial Position December 31, 2020 Assets $ 5,000 Cash Accounts and notes receivable 39,000 79,000 Inventory Property, plant, and equipment (net) 125,000 $248,000 Liabilities and Shareholders' Equity $ 75,000 Accounts and notes payable Long-term debt Common shares Retained earnings 62,000 60,000 51,000 $248,000