Financial & Managerial Accounting 17th Edition by Jan Williams ,Susan Haka,Mark Bettner,Joseph Carcello

Exercise 54

PROBLEM 5.1B
Correcting Classification Errors
Strong Knot, Inc., a service company, performs adjusting entries monthly, but prepares closing entries annually on December 31. The company recently hired Sally Addsup as its new accountant. Sally's first assignment was to prepare an income statement, a statement of retained earnings, and a balance sheet using an adjusted trial balance given to her by her predecessor, dated December 31, 2015. The statements Sally prepared are as follows:

Instructions
a. Prepare a corrected set of financial statements dated December 31, 2015. (You may assume that all of the figures in the company's adjusted trial balance were reported correctly except for Notes Payable, which is some amount other than $45,800.)
b. Prepare the necessary year-end closing entries.
c. Using the financial statements prepared in part a, briefly evaluate the company's profitability and liquidity.