A year out of college, you have $10,000 to invest. A friend has started Hunterstlnlimited, Inc., and he asks you to invest in his company

A year out of college, you have $10,000 to invest. A friend has started Hunterstlnlimited, Inc., and he asks you to invest in his company. You obtain the company's financial statements, which are summarized at the end of the first year as follows: 

Visits with your friend turn up the following facts:

 a. Hunters Unlimited delivered $140,000 of services to customers during 2014 and collected $100,000 from customers for those services. 

b. Hunters recorded a $50,000 cash payment for software as an asset. This cost should have been an expense. c. To get the business started, your friend borrowed $10,000 from his parents at the end of 2013. The proceeds of the loan were used to pay salaries for the first month of 2014. Since the loan was from his parents, your friend did not reflect the loan or the salaries in the accounting records. 

Requirements 

1. Prepare corrected financial statements. 

2. Use your corrected statements to evaluate Hunters Unlimited's results of operations and financial position. (Challenge) 

3. Will you invest in Hunters Unlimited? Give your reason. (Challenge) 

In this case, one of my friends asked me to invest $10,000 in the HU company, that he has started. But on review of the income statement and the balance sheet for the year 2014, it was revealed that there are some errors in those financial statements, which are redrawn as follows; 

Since HU company has not taken into account the $40,000 sales revenue the payment of which is yet to be collected the correct revenue would be $140,000($100,000+$40,000 

Since the payment of $50,000 for software is an expense and salaries of $10,000 paid from the borrowed funds are not taken into account, the expenses for 2014 would be, $140,000($80,000 +$50,000 +$10,000). 

Thus, the net income for 2014 would be nil. 

On the assets side, other assets have been reduced by $50,000 as the expenses on software were treated as an asset ($100,000—$50,000). The sales revenue which was uncollected for $40,000 has been shown as an asset(Accounts receivable).

 On the liabilities, side liabilities have been increased by $10,000 ($60,000+$10,000) as the amount borrowed from the parents. 

Stockholder's equity would be reduced by $20,000 as the net income become nil ($46,000 —$20,000). 

According to the corrected financial statements of HU company, since the company did not consider $40,000 uncollected sales revenue as per the accrual system of accounting, the sales revenue should be $140,000 instead of $100,000. Since the payment of $50,000 for software has been considered as expenses instead of an asset, and since the salaries payment of $10,000 has been taken into account, total expenses have become $140,000($80,000+$50,000+$10,000) instead of $80,000 only. When the revenue becomes $140,000 and expenses also become $140,000, the net income becomes nil ($140,000—$140,000. Similarly, on the assets side of the balance sheet, other assets will be reduced by $50,000 as the expense for software was treated as an asset. Accounts receivable of $40,000 will be shown as an asset. 

On the liabilities side, liabilities will include $10,000 borrowed amount from the parents. From the Stockholder's equity $20,000 for net income has to be deducted as the net income becomes nil. 

I would not like to invest in HU company because the company was not able to generate any profit during the year 2014 and the company's debt ratio is alarming. More liabilities in comparison to assets.