Inexperienced Bookkeepers!

The Balance Sheet $($including notes$)$ presented below has been submitted to you by an inexperienced bookkeeper. Prepare a corrected balance sheet $($including notes$).$ Consider formatting, terminology deficiencies, and classification inaccuracies in your corrections.

Fixed Assets$$Tangible

Tom Brady, Inc.

Balance Sheet

For the Period Ended $12/31/25$ Assets

Equipment

$$110,000$

Less: reserve for depreciation

$(40,000)$

$ $70,000$

Factory supplies

$22,000$

Land and buildings

$400,000$

Less: reserve for depreciation

$(140,000)$

$260,000$

Plant site held for future use

$90,000$

$ $442,000$

Current Assets Accounts receivable

$175,000$

Cash

$80,000$

Inventory

$220,000$

Treasury stock $($at cost$)$

$20,000$

$495,000$

Fixed Assets$--$Intangible Goodwill

$80,000$

Notes receivable

$40,000$

Patents

$26,000$

$146,000$

Deferred Charges

Advances to salespersons

$60,000$

Prepaid rent

$27,000$

Returnable containers

$75,000$

$162,000$

TOTAL ASSETS

$$1,245,000$

Liabilities

Current Liabilities

Accounts payable

$$140,000$

Allowance for doubtful accounts

$8,000$

Common stock dividend distributable

$35,000$

Income tax payable

$42,000$

Sales tax payable

$17,000$

$ $242,000$

Long$-$term Liabilities, $5\%$ debenture bonds, due $2030$

$500,000$

Reserve for contingencies

$160,000$

$660,000$

TOTAL LIABILITIES

$902,000$

Equity Capital stock, $$10$ par value, issued $12,000$ shares with

$60$ shares held as treasury stock

$$150,000$

Capital surplus

$90,000$

Dividends paid

$(20,000)$

Earned surplus

$123,000$

TOTAL EQUITY

$343,000$

TOTAL LIABILITIES AND EQUITY

$$1,245,000$

Note $1.$ The reserve for contingencies has been created by charges to earned surplus and has been established to provide a cushion for future uncertainties.

Note $2.$ The inventory account includes only items physically present at the main plant and warehouse. Items located at the company's branch sales office amounting to $$40,000$ are excluded since the company has consistently followed this procedure for many years.

You have been asked to settle an argument between a client and his inexperienced bookkeeper. Presented below is a Statement of Cash Flows prepared by the bookkeeper.

Banana Republic Statement of Cash Flows January $31,2025$

Sources of cash

From sales of merchandise $$382,000$

From sale of common stock $375,000$

From sale of investment $125,000$

From depreciation $78,000$

From issuance of note for truck $30,000$

From interest on investments $10,000$ Total Sources of cash $1,000,000$

Uses of cash

For purchase of fixtures and equipment

$330,000$

For merchandise purchased for resale

$255,000$

For operating expenses $($including depreciation$)$

$170,000$

For purchase of investment

$95,000$

For purchase of truck by issuance of note

$30,000$

For purchase of treasury stock

$10,000$

For interest on note

$1,000$

Total uses of cash

$891,000$

Net increase in cash

$$109,000$

The bookkeeper claims this statement is an excellent portrayal of a great first year with an increase in cash of

$$109,000.$ Your client claims that the first year of operations was an operating failure and the $$109,000$ is not the increase in cash. Using the statement above, $$build a statement of cash flows in proper form using the indirect method. The only noncash items in income are depreciation and the gain from the sale of the investment $($the purchase and the sale are related$).$ With whom do you agree, your client or the bookkeeper? Explain your position.