Whitegloves Janitorial Service was started 2 years ago by Lynn Sanders. Because business has been exceptionally good, Lynn decided on July 1, 2014. to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion. Lynn obtained on July I, 2014, a $25,000, 10% bank loan, payable $10,000 on July 1, 2015, and the balance on July 1, 2016. The terms of the loan require the borrower to have $10,000 more current assets than current liabilities at December 31, 2014. If these terms are not met, the bank loan will be refinanced at 15% interest. At December 31, 2014, the accountant for Whitegloves Janitorial Service Inc. prepared the balance sheet shown below.
Lynn presented the balance sheet to the bank’s loan officer on January 2, 2015, confident that
the company had met the terms of the loan. The loan officer was not impressed. She said, “We need
financial statements audited by a CPA.” A CPA was hired and immediately realized that the balance
sheet had been prepared from a trial balance and not from an adjusted trial balance. The adjustment data at the balance sheet date consisted of the following.

1. Unbilled janitorial services performed were S3,700.
2. Janitorial supplies on hand were $2,500.
3. Prepaid insurance was a 3-year policy dated January 1, 2014.
4. December expenses incurred but unpaid at December 31, $500.
5. Interest on the bank loan was not recorded.
6. The amounts for property plant, and equipmcnt presented in the balance sheet were reported net of accumulated depreciation (cost less accumulated depreciation). These amounts were $4,000 for cleaning equipment and $5,000 for delivery trucks as of January 1, 2014. Depreciation for 2014 was $2,000 for cleaning equipment and $5,000 for delivery trucks.

                     

Instructions
With the class divided into groups, answer the following.
(a) Prepare a correct balance sheet.
(b) Were the terms of the bank loan met? Explain.