Question

The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise the balance sheet. SANDERSON MANUFACTURING COMPANY Balance Sheet At December 31, 2018 ($ in 000s) Assets Current assets: Cash $ 3,250 Accounts receivable 7,500 Allowance for uncollectible accounts (2,400 ) Finished goods inventory 8,000 Prepaid expenses 3,200 Total current assets 19,550 Long-term assets: Investments 5,000 Raw materials and work in process inventory 4,250 Equipment 29,000 Accumulated depreciation—equipment (6,200 ) Patent ? Total assets $ ? Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 7,200 Note payable 8,000 Interest payable—note 2,100 Deferred revenue 7,000 Total current liabilities 24,300 Long-term liabilities: Bonds payable 7,500 Interest payable—bonds 1,200 Shareholders’ equity: Common stock $ ? Retained earnings ? ? Total liabilities and shareholders’ equity ? Additional information ($ in 000s): Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.2. That is, total liabilities are 120% of total shareholders’ equity. Retained earnings at the beginning of the year was $8,000. Net income for 2018 was $2,550 and $600 in cash dividends were declared and paid to shareholders. Management intends to sell the investments in the next six months. Interest on both the note and the bonds is payable annually. The note payable is due in annual installments of $2,000 each. Deferred revenue will be recognized as revenue equally over the next two fiscal years. The common stock represents 700,000 shares of no par stock authorized, 450,000 shares issued and outstanding.

Answer 1

Sanderson Manufacturing Company
Balance Sheet
At December 31, 2018
Assets
Current assets
Cash		3250
Investments		5000
Accounts receivable	7500
Allowance for uncollectible accounts	-2400	5100
Finished goods inventory		8000
Raw materials and work in process inventory		4250
Prepaid expenses		3200
Total current assets			28800
Property, plant, and equipment
Equipment		29000
Accumulated depreciation-store equipment		-6200
Total property, plant and equipment			22800
Intangible assets
Patent			8900
Total assets			60500
Liabilities and Shareholders' Equity
Current liabilities
Accounts payable	7200
Interest payable ($2100 + $1200)	3300
Deferred revenue (current portion)	3500
Note payable (current portion)	2000
Total current liabilities		16000
Long-term liabilities
Deferred revenue	3500
Note payable	6000
Bonds payable	7500
Total long-term liabilities		17000
Total liabilities			33000
Shareholders' equity
Common stock ($27500 - $9950)		17550
Retained earnings ($8000 + $2550 - $600)		9950
Total shareholders' equity			27500
Total liabilities and shareholders' equity			60500

Total shareholders' equity = Total liabilites/120% = $33000/120% = $27500