Question

Blossom Corporation, a private corporation, was formed on July 1, 2018. On July 31, Guy Gélinas, the company’s president, prepared the following statement of financial position:

Blossom Corporation Statement of Financial Position July 31, 2018
Assets				Liabilities and Shareholders’ Equity
Cash		$25,000		Accounts payable		$46,000
Accounts receivable		52,000		Boat loan payable		40,000
Inventory		34,000		Common shares		47,000
Boat		26,000		Retained earnings		4,000
		$137,000				$137,000

Guy admits that his knowledge of accounting is somewhat limited and is concerned that his statement of financial position might not be correct. He gives you the following additional information:

1.		The boat actually belongs to Guy Gélinas, not to Blossom Corporation. However, because Guy thinks he might take customers out on the boat occasionally, he decided to list it as an asset of the company. To be consistent, he also included as a liability of the company the personal bank loan that he took out to buy the boat.
2.		Included in the accounts receivable balance is $10,000 that Guy personally loaned to his brother 5 years ago. Guy included this in the receivables of Blossom Corporation so that he wouldn’t forget that his brother owes him money.
3.		Guy’s statements didn’t balance. To make them balance, he adjusted the Common Shares account until assets equalled liabilities and shareholders’ equity.

Prepare a corrected statement of financial position. (Hint: To get the balance sheet to balance, adjust Common Shares). (List Assets in order of liquidity.)

Answer 1

Blossom Corporation
Corrected Statement of Financial Position
July 31, 2018
Assets			Liabilities
Current Assets:			Current Liabilities:
Cash	$25,000		Accounts payable	$46,000
Accounts receivable	$42,000		Total current liabilities		$46,000
Inventory	$34,000		Shareholders' Equity
Total Current Assets		$101,000	Common shares	$51,000
			Retained earnings	$4,000
			Total Stockholders' equity		$55,000
Total		$101,000	Total		$101,000

Explanation:

1. Boat and Loan on Boat is belongs to Guy Gelinas not belongs to Blossom Corporation, therefore these should not incorporate into the financial statements of Blossom Corporation.
2. Personal loan to guys' brother should not include in the Blossom Corporation's books, Therefore

Accounts receivable = $52,000 - $10,000(Personal debt to guys brother)  = $42,000.

3. Adjusted the Common Shares account until Assets = liabilities and shareholders’ equity

Common Shares = Cash + Accounts receivable + Inventory - Accounts payable - Retained earnings

= $25,000 + $42,000 + $34,000 - $46,000 - $4,000

= $ 51,000.