Question

As controller for Henderson, you are attempting to reconstruct and revise the following balance sheet prepared by a staff accountant.

Henderson Manufacturing Company Balance Sheet At December 31, 2018 ($ in 000s)
Assets
Current assets:
Cash			$	1,950
Accounts receivable				4,450
Allowance for uncollectible accounts				(700	)
Finished goods inventory				6,300
Prepaid expenses				4,100
Total current assets				16,100
Long-term assets:
Investments				3,700
Raw materials and work in process inventory				4,600
Equipment				23,000
Accumulated depreciation–equipment				(9,700	)
Franchise				?
Total assets			$	?
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			$	7,900
Note payable				15,000
Interest payable–note				400
Deferred revenue				2,700
Total current liabilities				26,000
Long-term liabilities:
Bonds payable				8,000
Interest payable–bonds				200
Shareholders’ equity:
Common stock	$	?
Retained earnings		?		?
Total liabilities and shareholders’ equity				?

Additional information ($ in 000s):

1. Certain records that included the account balances for the franchise and shareholders’ equity items were lost. However, a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.5. That is, total liabilities are 150% of total shareholders’ equity. Retained earnings at the beginning of the year was $3,900. Net income for 2018 was $3,000, and $1,000 in cash dividends were declared and paid to shareholders.
2. The investments represent treasury bills purchased in December 2018 that mature in January 2019. These are considered cash equivalents.
3. Interest on both the note and the bonds is payable annually.
4. The note payable is due in annual installments of $1,500 each.
5. Deferred revenue will be recognized equally over the next 18 months.
6. The common stock represents 500,000 shares of no par stock authorized, 300,000 shares issued and outstanding.

Required:
Prepare a complete, corrected, classified balance sheet. (Do not round your intermediate calculations. Enter your answers in the order of their liquidity. Amounts to be deducted should be indicated by a minus sign. Enter your answers in thousands of dollars.)

HENDERSON MANUFACTURING COMPANY Balance Sheet At December 31, 2018 ($ in 000s) 01 lelo

Answer 1

Henderson Manufacturing Company Solve for missing amounts: Liabilities / Equity = 1.5 $34,200 / Equity = 1.5 Equity = $34,200 / 1.5 = $22,800 Beginning retained earnings + net income-dividends = Ending retained earnings 3900 3000 - 1000 = 5900 Total equity-retained earnings = Common stock 22800 - 5900 = 16900 Assets = Liabilities + equity Assets = $34,200 + 22,800 = $57,000 $40,000 - all other assets = Franchise $57,000 - 37,700 = $19,300

5650 Balance Sheet At December 31, 2018 ($ in 000s, except share data) Assets Current assets: Cash and cash equivalents Accounts receivable, net of $700 allowance for uncollectible accounts Inventories: Raw materials and work in process Finished goods Prepaid expenses Total current assets 4600 6300 4100 24400 Property, plant, and equipment: Equipment Less: Accumulated depreciation Net property, plant, and equipment 23000 -9700 13300 Intangibles: Franchise Total assets 19300 57000 Liabilities and Shareholders' Equity Current liabilities: Accounts payable Interest payable Deferred revenue Current maturities of long-term debt Total current liabilities 7900 600 1800 1500 11800 Long-term liabilities: Deferred revenue 900 Note payable 13500 Bonds payable 8000 Total liabilities 34200 Shareholders' equity: Common stock, no par, 500,000 shares authorized, 300,000 shares issued and outstanding 16900 Retained earnings 5900 Total shareholders' equity 22800 Total liabilities and shareholders' equity 57000 Cash of $1,900 + treasury bills of $3,750 (cash equivalents) **($2,700 / 18 months) x 12 months = $1,800