Expert answer:Case Study

Solved by verified expert:The document attached is a case study. I am Jefferson’s accountant and need to answer the following: 1. Record the correcting entry 2. Prepare financial statements 3. Current owners want $250,000 for the business. Jefferson does not want to pay more than Net Worth x 1.5. Should he buy? For how much? Please explain in detail each one. Thanks!
case_study_1.pdf

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Case 1 [ART SPECIALISTS, INC.]
Jefferson Jerome is interested in purchasing “Art Specialists Inc.”, an auction house. The
company receives the right to sell art but not to purchase the art themselves for a 5%
commission. Art Specialists rents office space and Chelsea and holds its auctions at local hotels.
Art Specialist Inc.
Unadjusted Trial Balance
December 31, 2013
Cash
Accounts receivable
Supplies
Equipment
Accumulated Depreciation
Accounts payable
Dividends
Capital stock
Retained earnings
Commission income
Rent Expense
Wages Expense
Auction Expenses
Depreciation Expenses
Membership Expenses
Supplies Expense
$
$
$
$
35,000.00
60,000.00
8,000.00
53,000.00
$
$
$
$
$
$
TOTAL
$ 374,000.00
$
$
$
14,500.00
5,600.00
50,000.00
$ 25,000.00
$ 84,900.00
$ 244,000.00
20,000.00
70,000.00
56,000.00
7,000.00
6,000.00
9,000.00
$ 374,000.00
As Jefferson’s accountant, you have received the trial balance above as well as the general
ledger. The review has found the following errors:

Year end bank reconciliation showed that the balance should be $30,000. A customer
should have been billed for commissions earned but it was recorded as a cash payment
of the commission income.
 Membership expenses are not related to the business and should be shown as a
dividend to shareholder.
 Depreciation expense should be $3,500 for the year.
 Supplies expenses failed to record $2,000 in packing supplies used during the year.
 Accounts receivables that have not been billed $10,000.
Required:
1. Record the correcting entry.
2. Prepare financial statements
3. Current owners want $250,000 for the business. Jefferson does not want to pay more
than Net Worth x 1.5. Should he buy? For how much?
…
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