The summary financial statements of KwikMart Ltd. on December 31, 2014, are as follows:

The following errors were made by the inexperienced accountant on December 31, 2013, and were not corrected.
l. The inventory was overstated by $ 13,000.
2. A prepaid expense of $2,400 was omitted (it was fully expensed in 2013).
3. Accrued revenue of $2,500 was omitted. (It was recognized when cash was received in 2014.)
4. A supplier's invoice for $ 1,700 for purchases made in 2013 was not recorded until 2014.
On December 31, 2014, there were further errors:
5. The inventory was understated by $17,000.
6. A prepaid expense of $750 was omitted.
7. Accrued December 2014 salaries of $1,800 were not recognized.
8. Unearned income of $2,300 was recorded in the 2014 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 2014 was $53,000.
Instructions
(a) Calculate the working capital, current ratio, and debt-to-equity ratio for KwikMart Ltd. based on the original balance sheet information provided above.
(b) Calculate the corrected net income for 2014.
(c) Prepare a corrected balance sheet at December 31, 2014.
(d) Using the corrected data, recalculate 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:

KWIKMART LTD. Balance Sheet, December 31, 2014 Assets Cash Accounts and notes receivable Inventory Property, plant, and equipment (net) $ 5,000 39,000 79,000 125,000 $248,000 Llabilities and Shareholders' Equity Accounts and notes payable Long-term debt Common shares Retained earnings 75,000 62,000 60,000 51,000 $248,000