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.
