Using Financial Reports: Identifying and Correcting Deficiencies in an Income Statement and Balance Sheet
Performance Corporation was organized on January 1, 2009. At the end of 2009, the company had not yet employed an accountant; however, an employee who was €œgood with numbers€ prepared the following statements at that date:

Required:
1. List all deficiencies that you can identify in these statements. Give a brief explanation of each one.
2. Prepare a proper income statement (correct net income is $30,000 and income tax expense is $10,000) and balance sheet (correct total assets are$142,000).

PERFORMANCE CORPORATION December 31, 2009 $175,000 Income from sales of merchandise Total amount paid for goods sold during 2009 Selling costs Depreciation (on service vehicles used) Income from services rendered Salaries and wages paid (90,000) (25,000) (10,000) 52,000 (62,000) PERFORMANCE CORPORATION December 31, 2009 Resources $ 32,000 42,000 50,000 Cash Merchandise inventory (held for resale) Service vehicles Retained earnings (profit earned in 2009) Grand total 30,000 $154,000 Debts Payables to suppliers Note owed to bank $ 22,000 25,000 13,000 Due from customers $ 60,000 Total $15,000 10,000 65,000 Supplies on hand (to be used in rendering services) Accumulated depreciation* (on service vehicles) Contributed capital, 6,500 shares Total 90,000 $150,000 Grand total