Question

, pomotional, or both? Why? stical Thinking pacision-Making 5 White bon exceptional truck and Making Across the Organization as Janitorial Service was started 2 years ago by Lynn Sanders. Because business Sally good, Lynn decided on July 1, 2015 to expand creations by acquiring an ad- hiring two more assistants. To finance the expansion Lynn obtained on July 1, 2015, hank loan, payable $10,000 on July 1, 2016, and the balance on July 1, 2017. The terms the borrower to have $10,000 more current assets than current liabilities at Decem- Cahese terms are not met, the bank loan will be refinanced at 15% interest. At December untant for Whitegloves Janitorial Service Inc. prepared the following balance sheet. WHITEGLOVES JANITORIAL SERVICE Balance Sheet December 31, 2015 2000 on Jofrances.to 25.000, 10% bank lo the loan require the I.2013. If the 2015, the accountant Current assets Cash Accounts receivable Supplies Prepaid insurance Total current assets Property, plant, and equipment Equipment (net) Delivery trucks (net) Total property, plant, and equipment Assets Liabilities and Stockholders' Equity Current liabilities $ 6,500 Notes payable $10,000 9,000 Accounts payable 2,500 5,200 Total current liabilities $12,500 4,800 Long-term liability $25,500 Notes payable 15,000 Total liabilities 27,500 22,000 Stockholders' equity 34,000 Common stock 30,000 Retained earnings 24.000 56,000 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, 2016, 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 adjust- ment data at the balance sheet date consisted of the following. 1. Unbilled janitorial services performed were $3,700. 2. Janitorial supplies on hand were $2,500. 3. Prepaid insurance was a 3-year policy dated January 1, 2015. 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 $4,000 for cleaning equipment and $5,000 for delivery trucks as of January 1, 2015. Deprecia- tion for 2015 was $2,000 for cleaning equipment and $5,000 for delivery trucks.

Answer 1

Note: Adjustments

Adjustments .	Impact on income (retained earnngs)
Unbilled Janitorial servies'	3700
Stock of supplies	2500
Insurance	-1600
O/s Expenses	-500
Interest payable	-1250
Depreciation	-7000
Total	-4150

.

a.Correct Balance Sheet:

ASSETS				LIABILITIES
Current Assets				Current Liabilities
Cash		6500		Notes Payable		10000
Accounts Receivable	9000+3700	12700		Accounts Payable		2500
Supplies	5200+2500	7700		O/s Expenses		500
Prepaid Insurance	4800*2/3	3200		Interest payable		1250
Total current assets			30100	Total current liabilities			14250
Property Plant and equip				Long term notes payable			15000
Equipment (net)	22000-2000	20000		Total Liabilities			29250
Delivery trucks (net)	34000-5000	29000	49000
				Stock Holders' equity
				Capital		30000
				Retaned earnings	24000-4150	19850	49850
Total Assets			79100	Total Liabilities			79100

b. Terms of bank is loan is that Current assets - current liabilities =>10,000 on 31.12.2015. So, 30100 - 14250 = 15850.Hence the terms of bank loan are met.