Question

Problem 3-8 Balance sheet; errors; missing amounts [LO3-2, 3-3]

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.

Required:
Prepare a complete, corrected, classified balance sheet. (Amounts to be deducted should be indicated by a minus sign.)
  

Answer 1

Total Liabilities = Current Liabilities+Long term Liabilities

= $24,300+($7,500+$1,200) = $24,300+$8,700 = $33,000

Debt Equity Ratio = 1.2

Stockholder's Equity = Total Liabilities/Debt Equity Ratio = $33,000/1.2 = $27,500

Retained Earnings at the end = Balance at the beginning+Net Income-Dividends

= $8,000+$2,500-$600 = $9,950

Common Stock = Stockholder's Equity - Retained Earnings at the end

= $27,500 - $9,950 =$17,550

Total Liabilities and Stockholder's Equity = $33,000+$27,500 = $60,500

Total assets will be equal to Total Liabilities and Stockholder's Equity (i.e $60,500)

Value of Patent can be calculated as a balancing figure in the Assets side of balance sheet.

Classified and Complete Balance Sheet is shown as follows:-

Sanderson Manufacturing Company

Balance Sheet as on December 31, 2018 (Amount in '000 $)

Assets	Details	Amount
Current Assets
Cash	3,250
Accounts Receivables, net (7,500-2,400)	5,100
Finished Goods Inventory	8,000
Prepaid Expenses	3,200
Investments	5,000
Raw Material and Work in process inventory	4,250
Total Current Assets		28,800
Non Current Assets
Fixed Assets
Equipment	29,000
Less: Accumulated Depreciation	(6,200)	22,800
Patents (Balancing Figure) (31,700 Non current Assets - 22,800 Equipment)		8,900
Total Non Current Assets (60,500 Total Assets-28,800 Current Assets)		31,700
Total Assets		60,500
Liabilities	Details	Amount
Current Liabilities
Accounts Payable	7,200
Note Payable	2,000
Interest Payable - Note	2,100
Interest Payable - Bonds	1,200
Deferred revenue (7,000/2)	3,500
Total Current Liabilities		16,000
Non Current Liabilities
Bonds Payable	7,500
Deferred Revenue (7,000/2)	3,500
Notes Payable (8,000-2,000)	6,000
Total Non Current Liabilities		17,000
Total Liabilities		33,000
Stockholder's Equity
Common Stock	17,550
Retained Earnings	9,950
Total Stockholder's Equity		27,500
Total Liabilities and Stockholder's Equity		60,500