Whitegloves Janitorial Service was started 2 years ago by Lynn Sanders. Because business has been exceptionally...

 

 

 

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Whitegloves Janitorial Service was started 2 years ago by Lynn Sanders. Because business has been exceptionally good, Lynn decided on July 1, 2019, to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion, Lynn obtained on July 1, 2019, a $25,000, 10% bank loan, payable $10,000 on July 1, 2020, and the balance on July 1, 2021. The terms of the loan require the borrower to have $10,000 more current assets than current liabilities at December 31, 2019. If these terms are not met, the bank loan will be refinanced at 15% interest. At December 31, 2019, the accountant for Whitegloves Janitorial Service Inc. prepared the following balance sheet. Whitegloves Janitorial Balance Sheet December 31, 2019 Assets Llabilities and Stockholders' Equity Current assets Current liabilities Cash $6,500 Notes payable $10,000 Accounts receivable 9,000 Accounts payable 2,500 Supplies 5,200 Total current liabilities $12,500 Prepaid insurance 4,800 Long-term liabilities Total current assets $25,500 Notes payable 15,000 Property, plant, and equipment Total liabilities 27,500 Equipment (net) 22,000 Stockholders' equity Delivery trucks (net) 34,000 Common stock 30,000 Total property, plant, and equipment 56,000 Retained earnings 24,000 Total stockholders' equity 54,000 Total assets $81,500 Total liabilities and stockholders' equity $81,500 Lynn presented the balance sheet to the bank's loan officer on January 2, 2020, 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 Whitegloves Janitorial services performed were $3,700. 2. Whitegloves Janitorial supplies on hand were $2,500. 3. Prepaid insurance was a 3-year policy dated January 1, 2019. 4. December expenses incurred but unpaid at December 31, $500. 5. Interest on the bank loan was not recorded. The amounts for property, plant, and equipment presented in the balance sheet were reported net of accumulated depreciation (cost less accumulated depreciation). These amounts were 6. $4,000 for cleaning equipment and $5,000 for delivery trucks as of January 1, 2019. Depreciation for 2019 was $2,000 for cleaning equipment and $5,000 for delivery trucks. Prepare a correct balance sheet. (List Current Assets in order of liquidity. List Property, Plant and Equipment in order of Equipment and Delivery Trucks.) Whitegloves Janitorial Service Balance Sheet December 31, 2019 Assets Current Assets Cash 6500 Accounts Receivable Supplies Prepaid Insurance Less Delivery Trucks Less A Accumulated Depreciation-Delivery Trucks Property, Plant and Equipment Liabilities and Stockholders' Equity Current Liabilities Notes Payable 10000 Interest Payable 1250 Accounts Payable 3000 Total Current Liabilities 14250 Long-term Liabilities Notes Payable 15000 Total Liabilities 29250 Stockholders' Equity Common Stock 30000 Retained Earnings Total Liabilities and Stockholders' Equity $4 Whitegloves Janitorial Service was started 2 years ago by Lynn Sanders. Because business has been exceptionally good, Lynn decided on July 1, 2019, to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion, Lynn obtained on July 1, 2019, a $25,000, 10% bank loan, payable $10,000 on July 1, 2020, and the balance on July 1, 2021. The terms of the loan require the borrower to have $10,000 more current assets than current liabilities at December 31, 2019. If these terms are not met, the bank loan will be refinanced at 15% interest. At December 31, 2019, the accountant for Whitegloves Janitorial Service Inc. prepared the following balance sheet. Whitegloves Janitorial Balance Sheet December 31, 2019 Assets Llabilities and Stockholders' Equity Current assets Current liabilities Cash $6,500 Notes payable $10,000 Accounts receivable 9,000 Accounts payable 2,500 Supplies 5,200 Total current liabilities $12,500 Prepaid insurance 4,800 Long-term liabilities Total current assets $25,500 Notes payable 15,000 Property, plant, and equipment Total liabilities 27,500 Equipment (net) 22,000 Stockholders' equity Delivery trucks (net) 34,000 Common stock 30,000 Total property, plant, and equipment 56,000 Retained earnings 24,000 Total stockholders' equity 54,000 Total assets $81,500 Total liabilities and stockholders' equity $81,500 Lynn presented the balance sheet to the bank's loan officer on January 2, 2020, 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 Whitegloves Janitorial services performed were $3,700. 2. Whitegloves Janitorial supplies on hand were $2,500. 3. Prepaid insurance was a 3-year policy dated January 1, 2019. 4. December expenses incurred but unpaid at December 31, $500. 5. Interest on the bank loan was not recorded. The amounts for property, plant, and equipment presented in the balance sheet were reported net of accumulated depreciation (cost less accumulated depreciation). These amounts were 6. $4,000 for cleaning equipment and $5,000 for delivery trucks as of January 1, 2019. Depreciation for 2019 was $2,000 for cleaning equipment and $5,000 for delivery trucks. Prepare a correct balance sheet. (List Current Assets in order of liquidity. List Property, Plant and Equipment in order of Equipment and Delivery Trucks.) Whitegloves Janitorial Service Balance Sheet December 31, 2019 Assets Current Assets Cash 6500 Accounts Receivable Supplies Prepaid Insurance Less Delivery Trucks Less A Accumulated Depreciation-Delivery Trucks Property, Plant and Equipment Liabilities and Stockholders' Equity Current Liabilities Notes Payable 10000 Interest Payable 1250 Accounts Payable 3000 Total Current Liabilities 14250 Long-term Liabilities Notes Payable 15000 Total Liabilities 29250 Stockholders' Equity Common Stock 30000 Retained Earnings Total Liabilities and Stockholders' Equity $4

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