Question

You are the Controller at Gander, Inc. and are responsible for preparing and analyzing the balance sheet for December 31, 2018, the end of the company’s fiscal year. Gander Inc. had the following balance sheet balances at December 31, 2017:

GANDER, INC. Balance Sheet As of December 31, 2017 Cash $13,596 Accounts payable $44,616 Accounts receivable $24,948 Inventories $130,360 Plant assets (net) $150,000 Common stock $250,000 Retained earnings $24.288 Total Assets $318,904 Total Liabilities & Equity $318,904

During 2018, the following occurred:

1. Customer sales on account $400,000.
2. Received payments from customers in cash $380,000.
3. Purchased merchandise on credit $220,000.
4. Paid cash to vendors $230,000.
5. Costs related to merchandise sold $170,000.
6. Operating expenses were paid in cash $80,000.

There is additional information to consider.

• A note payable for $46,200 was issued on June 30, 2018 and is due in two years on June 30, 2020. Interest in the amount of 10% is paid annually on June 30th.
• Depreciation on the plant assets for the year is $20,000.
• The original cost of the plant assets was $300,000.

Required:

1. Using the below information, prepare a classified balance sheet for 2018 for Gander.
   • Please type out the journal entries you made for 2018 prior to showing the 2018 balance sheet. You do not have to show the posting to the T accounts or any trial balances.
2. Calculate the current ratio and the debt to equity ratio.

Answer 1

Gander, Inc Journal entries Date Account 1 Accounts Receivable Sales Credit Calculation Debit $ 400,000 $ 400,000 2 $ 380,000 Cash Accounts Receivable $ 380,000 $ 220,000 Inventories Accounts Payable $ 220,000 $ 230,000 Accounts Payable Cash $ 230,000 $ 170,000 Cost of goods sold Inventories $ 170,000 6 $ 80,000 Operating expense Cash $ 80,000 $ 46,200 $ 46,200 7 Cash Notes Payable Adjusting entries 8 Interest expense Interest Payable $ 2,310 -46,200*10%*6/12 $ 2,310 $ 20,000 $ 20,000 $ 400,000 9 Depreciation expense Accumulated Depreciation Closing entries 10 Sales Cost of goods sold Operating expense Interest expense Depreciation expense Retained Earnings $ 170,000 $ 80,000 $ 2,310 $ 20,000 $ 127,690

Gander, Inc Balance Sheet As of December 31, 2018 Assets Current Assets Cash Accounts Receivable Inventories Total Current Assets 129,796 44,948 180,360 355,104 Property, Plant & Equipment Plant assets Accumulated Depreciation Net Plant assets Total Assets 300,000 (170,000) 130,000 485,104 Liabilities & Stockholders Equity Current Liabilities Accounts Payable Interest Payable Total Current Liabilities 34,616 2,310 36,926 Non-Current Liabilties Notes Payable Total Liabilties 46,200 83,126 Stockholders Equity Common Stock Retained earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 250,000 151,978 401,978 485,104 Current Ratio Current Ratio Current Assets/ Current Liabilities =355,104/ 36,926 9.62 Current Ratio Debt to Equity Ratio Debt to Equity Ratio Total Debt/Total Equity =83,126/401,978 0.21 Debt to Equity Ratio