Balance Sheet Of The Renewed Life Center Inc. As Of June

Balance Sheetthe Renewed Life Center Incbalance Sheetsat June 30asse

Balance sheet THE RENEWED LIFE CENTER INC. BALANCE SHEETS At June 30, ASSETS Current assets Cash and cash equivalents $ 116,546 Accounts receivable, net of allowance for doubtful accounts of $15,201 and $14,881 Rent deposit - 2,663 Prepaid and other assets 7,110 Income tax recoverable 5,104 Total current assets 164,895 Long term investments 34,000 Property, plant and equipment Land 130,000 Buildings 493,932 Equipment 64,535 Leasehold improvements 14,153 Software 20,363 Less accumulated depreciation and amortization (50,913) Net property, plant and equipment 658,450 Total assets $ 856,752 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 28,465 Accrued payroll and taxes 15,063 Income taxes payable 4,266 Long term debt - current portion 26,427 Total current liabilities 70,097 Long term debt net of current portion 478,560 Total liabilities 548,097 Stockholders' equity Common stock, $1 par value 50,000 Additional paid-in capital 90,000 Retained earnings 162,685 Accumulated other comprehensive gain (loss) (5,438) Total stockholders' equity 308,247 Total liabilities and stockholders' equity $ 856,752

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Financial Statement Preparation for The Renewed Life Center Inc.

The purpose of this financial analysis is to prepare accurate, GAAP-compliant external financial statements for The Renewed Life Center Inc., a for-profit rehabilitation clinic in Sparks, Nevada. The company has historically maintained records on a cash basis but is now required to report on an accrual basis due to regulatory oversight. This involves adjusting the trial balances for the fiscal year ending June 30, 2011, to produce a comprehensive set of financial statements, including a comparative balance sheet, income statement, statement of stockholders’ equity, and statement of cash flows.

Restating and Correcting the Opening Trial Balance

Initial review of the provided trial balances highlights discrepancies in asset and liability accounts impacted by past accounting practices, including unrecorded depreciation, incorrect treatment of investments, and improper recognition of property acquisitions. The first step involves recalibrating the opening balances for June 30, 2010, by adjusting the prior year’s trial balance data to reflect correct asset valuation, accumulated depreciation, and liability amounts.

Specifically, the land and building assets acquired in July 2010 were not accurately reflected in prior trial balances. The land was valued at $130,000, and the building at approximately $400,000, with associated mortgages. Given depreciation schedule data, accumulated depreciation for equipment and software needs refinement. For example, equipment is depreciated over five years, and software amortized similarly, with half-year depreciation in the acquisition year. Additionally, the rent deposit, initially recorded as recoverable, was later found to be irrecoverable, thus requiring a write-off.

Adjustments should also correct the cash balances between the period-end balances, reconcile the securities’ fair value, and account for previously unrecorded accrued vacation pay and taxes payable, with a comprehensive effort to reflect the correct fiscal position at June 30, 2010.

Prior Period Adjustments

Adjustments to prior year balances include the correction of the carrying amount of fixed assets for depreciation, revaluation of investments, and restatement of liabilities such as deferred taxes and accrued expenses. Notably, the securities sold during 2011 at a loss of $16,825 must be recorded appropriately as a realized loss, impacting retained earnings. Furthermore, prior period accrued vacation of $1,478 has to be incorporated into the 2010 liabilities, affecting payroll expense and accrued liabilities.

Additional prior period adjustments involve recognizing the amortization of leasehold improvements because 80% had been amortized by June 30, 2010, and the remaining balance written off. These entries will be reflected in the current period’s depreciation schedule, affecting net income and stockholders' equity.

Current Period Adjustments and Corrected Trial Balance

For fiscal year 2011, the major adjustments involve depreciation for newly acquired assets, amortization of leasehold improvements, recognition of accrued vacation, and correction of fixed asset valuations, among others. These include: updating depreciation expense on buildings to reflect the acquisition date, recalculating depreciation for equipment and software systems, and adjusting accumulated depreciation to represent accurate expenses for the year.

Significant expenses such as property taxes, insurance, utilities, salaries, and payroll taxes must be properly accrued, including vacation pay. The accounting for the equity issuance in January 2011 and the associated proceeds increases the common stock and paid-in capital accounts, affecting stockholders’ equity. The final step involves compiling these adjustments into a corrected trial balance, forming the basis for the financial statements.

Preparation of Financial Statements

Balance Sheets

The balance sheets as of June 30, 2010, and June 30, 2011, will show the company’s assets, liabilities, and equity positions, adjusted for the corrections described. Key asset improvements include capitalized construction costs, depreciation of fixed assets, and fair valuation of securities. Liabilities are updated for accrued expenses and mortgage obligations, with long-term debt properly classified and valued.

Income Statement

The income statement will detail revenues from treatment fees, adjusted for timing differences in cash collections and accruals, and expenses including salaries, depreciation, interest, and other operational costs. The realized loss on securities sale is recognized, along with depreciation and amortization expenses derived from the updated schedules. The net result reflects the company’s profitability during the year, with tax adjustments consistent with the 30% federal rate.

Statement of Stockholders’ Equity

This statement summarizes changes in equity, including issuance of new shares, net income or loss, and other comprehensive income or loss from unrealized gains or losses on securities. The opening balances are adjusted for prior period corrections, and year-end balances incorporate the current year’s activities, reflecting the total accumulated equity position.

Statement of Cash Flows

The cash flow statement should be prepared using the indirect method, starting with net income and adjusting for non-cash transactions such as depreciation, amortization, and gains or losses on securities. Operating cash flows include changes in accounts receivable, payable, and accrued expenses, while investing activities reflect securities sales, purchases, and capital expenditures. Financing activities include loan payments and proceeds from stock issuance. This comprehensive view reveals how cash was generated and used throughout the year.

Conclusion and Significance

This exercise underscores the importance of meticulous account reconciliation in transitioning from cash to accrual accounting, especially for external financial reporting as mandated. Properly adjusted financial statements provide stakeholders with an accurate perspective of the company’s financial health, compliance with GAAP, and transparency in reporting. The process also emphasizes the value of systematic depreciation, asset management, and liability recognition to uphold financial integrity and support strategic decision-making.

References

• Accounting Standards Codification (ASC) 360 - Property, Plant, and Equipment. (FASB). Financial Accounting Standards Board.
• Gibson, C. H. (2012). Financial Reporting & Analysis (11th ed.). Cengage Learning.
• Felix, W. F. (2011). Intermediate Accounting. Wiley.
• Meigs, W. D., & Meigs, M. R. (2012). Financial Accounting. McGraw-Hill Education.
• U.S. Securities and Exchange Commission. (2013). Selected Financial Statement Disclosure Requirements. SEC.gov.
• Financial Accounting Standards Board (FASB). (2021). ASC 825 - Financial Instruments, Fair Value Measurement.
• Huefner, R. C. (2010). Principles of Accounting. Pearson.
• Arens, A. A., Elder, R. J., & Beasley, M. S. (2014). Auditing and Assurance Services. Pearson.
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• Biggs, S. (2019). The Art of Financial Statement Analysis. Wiley.