THE CENTER FOR REJUVENTATED LIFE INC.

The Center for a Rejuvenated Life Inc. (CRL) is a for profit rehabilitation clinic located in Mesquite, Nevada. In the past the clinic has maintained its records primarily on a cash basis although it has included adjustments for accounts payable at the end of each month. In 2015, the State of Nevada oversight agency has demanded financial statements prepared on an accrual basis in accordance withU.S. generally accepted accounting principles. You have been asked to prepare these financial statements which will include comparative balance sheets at June 30, 2014 and 2015, an income statement, statement of stockholders’ equity and a statement of cash flows for the year ended June 30, 2015. These financial statements are not internal financial statements. They are external reports and should be appropriately summarized.

The attached trial balances have been prepared by CRL’s bookkeeper from the computerized accounting records. These trial balances are the post closing trial balance from the prior year and the trial balance for the current year. Based on your inquiries and review of this set of trial balances you note a number of deficiencies and amendments that will be necessary to prepare the required financial statements. These are summarized as follows:

Cash in the banks is correct at each balance sheet date and has been reconciled to the bank statements.

The investment is an available-for-sale security and not considered a cash equivalent for the purpose of the statement of cash flows. Fair value of the shares owned at June 30, 2015 and 2014 was $34,000 and $138,000, respectively. The original cost of the shares was as shown on the trial balance. During fiscal year 2015, $100,000 was received from the sale of shares to pay for the building renovation. The cost of the securities sold was $116,825 and a loss of $16,825 has been recorded. No shares were purchased during the 2015fiscal year.

CRL has not accounted for accounts receivable. Sales are recorded when cash is collected from clients and insurance companies. Amounts due from clients and insurance companies at June 30, 2015 and 2014 respectively have been determined to be:

20152014

Clients80,419.00 28,271.00

Insurance companies19,888.004,745.80

All accounts receivable due from insurance companies are considered collectible. Based on past experience and the nature of the clientele, only 50% of balance due from clients is expected to be collected at each balance sheet date.

Inventory of drug supplies on hand is immaterial.

The liability insurance policyis paid each year in January for the full calendar year. The amount in the 2015expense account represents the January2015 payment for the 2015 calendar year. The equivalent 2014 payment was $12,220.00.

Property taxes through June 30, 2015 on the new property were recorded as an expense and paid.

Accounts payable are correct at each balance sheet date and all relate to operating expenses.

The accrued payroll balances are correct except for the fact that accrued vacation pay has not been recognized. Accrued vacation pay of $3,000 and $1,478 existed at June 30, 2015 and 2014, respectively.

The amount recorded as income taxes paid in 2015represents the payment of the June 30, 2014 tax liability. You may assume that this amount was correctly computed and should have been recorded in 2014.The 2015federal tax rate is 30% of profit/lossfor the year.

An issue of 10,000 shares was made to an investor at a price of $4.40 a share on January 2,2015.

Property, plant and equipment and the related liabilities are messed up. Depreciation has never been recorded for any of the capital assets and the purchase of the new building and related loans have not been accounted for correctly. A depreciation schedule through June 30, 2014 has been provided for your use.

OnJuly 1, 2014,CRL purchased land and a building for a total purchase of $530,000. The purchase was 100% financed by two mortgages offered by the vendor; a first mortgage of $480,000 and a second mortgage of $50,000. Based on property tax valuations, the land portion of the acquisition was assessed to be $130,000 with the balance relating to the building. In the period from July through December 31, 2014,CRL continued to operate from its former leasehold premises while the new clinic was being refurbished. The cost of the building refurbishment was included in Construction Costs – new building. Assume these costs were incurred evenly throughout the construction period. All of these costs should be capitalized. The building was finally completed in late December 2014 and CRL terminated its lease and commenced operations from the new building at that time.

The mortgages call for equal quarterly payments due on March 31, June 30, September 30 and December 31 each year. These payments include interest at 5% per year on the first mortgage and 7% per year on the second mortgage. The mortgages were taken out on July 1, 2014 and four payments of $10,500 have been made on the first mortgage and four payments of $2,500 have been made on the second mortgage on time. These payments will continue for another 9 years (10 years from the start) at which time (July 1, 2023) the remaining mortgage principal will be fully repayable. You may assume that the market rates are equal to the stated rates.

Additions to equipment in 2015were $25,726. Useful life for all equipment and the software system isan estimated five year life with no residual value. The new building is estimated to have a forty year life with no residual value. A half year’s depreciation is taken in the year of acquisition and disposal. Assume straight-line depreciation is used for all depreciable assets. No fixed assets have been sold.

The leasehold improvements reverted to the lessor at the termination of the lease in December 2015. 80% of the improvements should have been amortized at June 30, 2014 based on the five year lease term and the balance should be written off in the current year. In addition because of a dispute with the lessor concerning damage to the leased premises, the rent deposit which was thought to be recoverable at June 30, 2014 proved to be irrecoverable in 2015and should be written off in 2015.

TO DO THIS EXERCISE

  1. Correct the opening trial balance to determine the figures needed for the opening balance sheet.
  2. Enter the correcting entries for the prior year items in the current year trial balance.
  3. Correct the current year trial balance with the required current period adjustments.
  4. Prepare the financial statements. You must submit a PDF version of your financial statements.
  5. Due date: April 29, 2015 by 11:30 pm.

This exercise must be done using your excel skills. It is not a manual exercise.