Question

Complete the partial balance sheet on the bottom. Show all formulas and work. All information is provided but may not neccessarily be needed.

You have been asked to make some recommendations to a company regarding financing for an upcoming major expansion. The company has been very successful but they will need a major inflow of cash to purchase the fixed assets they need for the expansion and hire additional employees. They believe they will need at least $1,500,000 and have asked for your recommendations as to how they should obtain the necessary funds. They have also asked for depreciation schedules for the new assets they plan to purchase. Assume the split between Current Assets and Long Term Assets is 20% current and 80% long term.

		NFT Consulting and Sales Inc
		Post Closing Trial Balance
		October 31, 2018
Cash		$              304,900
Accounts Receivable		76,580
Allowance for Uncollectible Accounts			$                  5,690
Supplies		56,500
Inventory		68,596
Prepaid Insurance		57,890
Land		260,000
Building		550,000
Accumulated Depr – Building			25,650
Office Equipment		856,850
Accumulated Depr – Office Equip			22,500
Computer Equipment		556,500
Accumulated Depr - Computer Equip			10,250
Accounts Payable			56,560
Utilities Payable			16,850
Wages Payable			58,950
Interest Payable			25,000
Long term Note Payable			390,000
Mortgage Payable			406,800
Common Stock ($1 par, 1,000,000,			400,000
shares authorized, 400,000 issued
and outstanding)
Retained Earnings			1,369,566
		$           2,787,816	$          2,787,816

PLANNED ASSET ACQUISITIONS
Reminder that the company’s fiscal year is November 1 through October 31.
Asset	Cost	Useful life	Salvage Value	Depreciation Method	Purchase Date
Land	100,000	N/A	N/A	N/A	1-Nov-18
Building	465,500	30	15,500	Straight line	1-Nov-18
Office Equipment	150,500	4	10,500	Straight line	1-Apr-19
Delivery Equipment	200,000	6	20,000	production	1-May-19
Additional information related to the $200,000 delivery equipment purchase: It is ESTIMATED that the equipment will be ABLE TO DRIVE 150,000 total miles over its lifetime. To complete the depreciation schedule, PRESUME that the actual miles driven for its useful life are as indicated below. Also, round depreciation expense per unit to the nearest cent and depreciation expense to the nearest dollar.
	Year 1	12,560
	Year 2	32,560
	Year 3	31,650
	Year 4	29,850
	Year 5	26,500
	Year 6	22,350
		155,470

Complete: The company could issue 400,000 additional shares of $1 par value common stock for $4 per share The company will begin paying a dividend to ALL the common shareholders of $0.12 per share and this will continue into the future.

Answer 1

The trial balance for 31-10-2018 is given so balance sheet can be prepared

Balance Sheet as on 31-10-2018
taking in account the trial balance
Liabilities	Amount	Amount	Assets	Amount	Amount
Common Stock ($1 par, 1,000,000,		400,000	Land		260,000
shares authorized, 400,000 issued
and outstanding)			Building		550,000
Retained Earnings		1,369,566	Office Equipment		856,850
Allowance for Uncollectible Accounts		$                  5,690	Computer Equipment		556,500
Accumulated Depr – Building		25,650	Delivery Equiptment
			Cash		$              304,900
Accumulated Depr – Office Equip		22,500	Accounts Receivable		76,580
			Supplies		56,500
Accumulated Depr - Computer Equip		10,250	Inventory		68,596
			Prepaid Insurance		57,890
Accounts Payable		56,560
Utilities Payable		16,850
Wages Payable		58,950
Interest Payable		25,000
Long term Note Payable		390,000
Mortgage Payable		406,800
		27,87,816			27,87,816

Now considering expansion plan and adjustments accordingly following are the workings

---> actual funds raised are 1600000 (400000 shares issued at $4) out of which $1 is at par value and remaining $3 shall be share premium.

--> out of 1600000 , $916000 is invested(as given in question) in long term fixed assets which are shown as addition under head of respective assest

---> it is said that such long term fixed asstes comprise of 80% of the total investment in assets and the remaining 20% is for current assets

therefore current assets = 916000/80% * 20% = 229000 which is shown as addition in the head of current assets.

---> in absence of particular information the balance amount received from issuing shares is estimated to be used for additional employee cost which has to be reduced from retained earning as it is expense.

employee cost = 1600000-229000-916000 = 455000

----> Dividend payable = 0.12 * 800000 = 96000 is shown as payable and same is reduced from retained earnings

Depreciation schedule

(Note: in absense of useful life of originally owned assets the depreciation is calculated only on the additions)

Asset	Cost	Useful life	Salvage Value	Depreciation Method	Purchase Date	Depreciation
Land	1,00,000	N/A	N/A	N/A	01-Nov-18	NA
Building	4,65,500	30	15,500	Straight line	01-Nov-18	15,516.67
Office Equipment	1,50,500	4	10,500	Straight line	01-Apr-19	37,625.00
Delivery Equipment	2,00,000	6	20,000	production	01-May-19	16157.458

Depreciation is not applicable for land as it is assumed to have unlimited useful life.

Depreciation on building was calculated as cost/useful life for the entire year 465500/30

Depreciation on office equiptment was calculated as cost/useful life for the entire year as it is used for more than 6 mionths 150500/4

Depreciation on Delivery equiptment is based on production =200000*12560/155470

Depreciation being expense is reduced from retained earnings and added to Accumulated Depreciation account.

Balance sheet after adjustments

Balance Sheet as on 31-10-2019
taking in account the adjustments
Liabilities	Amount	Amount	Assets	Amount	Amount
Common Stock ($1 par, 1,000,000,		8,00,000.00	Land	2,60,000.00
shares authorized, 800,000 issued			addition	1,00,000.00	3,60,000.00
and outstanding)			Building	5,50,000.00
Stock Premium		12,00,000.00	addition	4,65,500.00	10,15,500.00
Retained Earnings	13,69,566.00		Office Equipment	8,56,850.00
less employee cost	-4,55,000.00		addition	1,50,500.00	10,07,350.00
less Depreciation	-69,299.12		Computer Equipment		5,56,500.00
less dividend payable	-96,000.00	7,49,266.88	Delivery Equiptment		2,00,000.00
Allowance for Uncollectible Accounts		5,690.00	Cash		3,04,900.00
Accumulated Depr – Building	25,650.00		Accounts Receivable		76,580.00
addition	15,516.67	41,166.67	Supplies		56,500.00
Accumulated Depr – Office Equip	22,500.00		Inventory		68,596.00
addition	37,625.00	60,125.00	Prepaid Insurance		57,890.00
Accumulated Depr - Computer Equip		10,250.00	Current assets		2,29,000.00
Accumulated Depr - Delivery Equip		16,157.46
Accounts Payable		56,560.00
Utilities Payable		16,850.00
Wages Payable		58,950.00
Interest Payable		25,000.00
Long term Note Payable		3,90,000.00
Mortgage Payable		4,06,800.00
Dividend payable		96,000.00
		39,32,816.00			39,32,816.00

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