Big Screen Scripts is a service-type enterprise in the entertainment field, and its manager, William Pippin, has only a limited knowledge of accounting. Pippin prepared the following balance sheet, which, although arranged satisfactorily, contains certain errors with respect to such concepts as the business entity and asset valuation. Pippin owns all of the corporation’s outstanding stock.

          

BIG SCREEN SCRIPTS Balance Sheet November 30, 2007
Assets		Liabilities&Owner’s Equity
Cash	$5,150	Liabilities:
Notes Receivable	2,700	Notes Payable	$ 67,000
Accounts Receivable	2,450	Accounts Payable	35,805
Land	70,000	Total liabilities	$102,805
Building	54,320	Owner’s equity:
Office Furniture	8,850	Capital Stock	5,000
Other Assets	22,400	Retained Earnings	58,065
Total	$165,870	Total	$165,870

In discussion with Pippin and by inspection of the accounting records, you discover the follow­ing facts:

1.      The amount of cash, $5,150, includes $3,400 in the company’s bank account, $540 on hand in the company’s safe, and $1,210 in Pippin’s personal savings account.

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2.      One of the notes receivable in the amount of $500 is an IOU that Pippin received in a poker game several years ago. The IOU is signed by “B.K.,” whom Pippin met at the game but has not heard from since.

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3.      Office furniture includes $2,900 for a Persian rug for the office purchased on November 20. The total cost of the rug was $9,400. The business paid $2,900 in cash and issued a note pay­able to Zoltan Carpet for the balance due ($6,500). As no payment on the note is due until January, this debt is not included in the liabilities above.

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4.      Also included in the amount for office furniture is a computer that cost $2,525 but is not on hand because Pippin donated it to a local charity.

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5.      The “Other Assets” of $22,400 represent the total amount of income taxes Pippin has paid the federal government over a period of years. Pippin believes the income tax law to be uncon­stitutional, and a friend who attends law school has promised to help Pippin recover the taxes paid as soon as he passes the bar exam.

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6.       The asset "Land" was acquired at a cost of $39,000 but was increased to a valuation of $70,000 when one of Pippin’s friends offered to pay that much for it if Pippin would move the building off the lot.

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7.      The accounts payable include business debts of $32,700 and the $3,105 balance owed on Pippin’s personal MasterCard.

Instructions

a. Prepare a corrected balance sheet on November 30, 2007.

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b. For each of the seven numbered items above, use a separate numbered paragraph to explain whether the treatment followed by Pippin is in accordance with generally accepted accounting principles.