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 holds its
auctions at local hotels.
Art Specialists, Inc.

Unadjusted Trial Balance December 31, 2009

Cash

$ 65,000.00

Accounts receivable

$ 36,000.00

Supplies

$ 8,000.00

Equipment

$ 53,000.00

Accumulated Depreciation

$ 14,500.00

Accounts payable

$ 5,600.00

Dividends

$ 50,000.00

Capital stock

$ 25,000.00

Retained earnings

$ 84,900.00

Commission income

$ 250,000.00

Rent Expense

$ 20,000.00

Wages Expense

$ 70,000.00

Auction Expenses

$ 56,000.00

Depreciation Expenses

$ 7,000.00

Membership Expenses

$ 6,000.00

Supplies Expense

$ 9,000.00

TOTAL

$ 380,000.00

$ 380,000.00

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 $40,000.
A customer should have been billed for $25,000, 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 $200,000 for the business. Jefferson does not want to pay more than Net Worth x 1.5. Should he buy?

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