The following are the financial statements issued by Allen Corporation for its fiscal year ended October 31, 2007:


Notes to Financial Statements:
1. Long-Term Lease. Under the terms of a 5-year noncancellable lease for buildings and equipment, the Company is obligated to make annual rental payments of $40,000 in each of the next four fiscal years. At the conclusion of the lease period, the Company has the option of purchasing the leased assets for $20,000 (a bargain purchase option) or entering into another 5-year lease of the same property at an annual rental of $5,000.
2. Pension Plan. Substantially all employees are covered by the Company€™s pension plan. Pension expense is equal to the total of pension benefits paid to retired employees during the year.
3. Patent. The patent had an estimated remaining life of 10 years at the time of purchase. The Company€™s patent was purchased from Apex Corporation on January 1, 2007, for $250,000.
4. Deferred Income Tax Payable. The entire balance in the deferred income tax payable account arose from tax-exempt municipal bonds that were held during the previous fiscal year, giving rise to a difference between taxable income and reported net earnings for the fiscal year ended October 31, 2007. The deferred liability amount was calculated on the basis of past tax rates.
5. Warrants. On January 1, 2006, one common stock warrant was issued to stockholders of record for each common share owned. An additional share of common stock is to be issued upon exercise of ten stock warrants and receipt of an amount equal to par value. For the six months ended October 31, 2007, the average market value for the Company€™s common stock was $5 per share and no warrants had yet been exercised.
6. Contingent Liability. On October 31, 2007, the Company was contingently liable for product warranties in an amount estimated to aggregate $75,000.

Required
Review the preceding financial statements and related notes. Identify any inclusions or exclusions from them that would be in violation of generally accepted accounting principles, and indicate corrective action to be taken. Do not comment as to format or style. Respond in the following order:
1. Statement of Financial Position
2. Notes
3. Earnings Statement
4. Statement of Retained Earnings
5.General

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ALLEN CORPORATION Statement of Financial Position October 31, 2007 Assets Cash Accounts receivable, net Inventory S15,000 150,000 120,000 $285,000 250,000 125.000 $660,00O Total current assets Patent (Note 3) Land Total assets Liabilities Accounts payable S 80,000 20,.000 S 100,000 80,000 180,000 Accrued expenses Total current liabilities Deferred income tax payable (Note 4) Total liabilities Stockholders' Equity Common stock, par S1 (Note 5) Additional paid-in capital Retained earnings $100,000 180,000 200,000 480,000 $660,000 Total liabilities and stockholders equity Earnings Statement For the Fiscal Year Ended October 31, 2007 Sales Cost of goods sold $1,000,000 750,000) 250,000 Cross margin Expenses Bad debt expense Insurance Lease expenses (Note 1) Repairs and maintenance Pensions (Note 2) Salaries 7,000 13,000 40,000 30,000 12,000 60,000 Earnings before provision fo Provision for income tax Net earnings 162,000 88,000 28,740 r income tax Earnings pe r common share outstanding Statement of Retained Earnings For the Fiscal Year Ended October 31, 2007 Retained earnings, November 1, 2006 Extraordinary gain, net of income tax Net earnings for the fiscal year ended October 31, 2007 $150,000 25,000 59,260 $234,260 34,260 $200,000 Dividends (S0.3426 per share) Retained earnings, October 31, 2007