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			$	2,350
Accounts receivable				5,700
Allowance for uncollectible accounts				(1,500	)
Finished goods inventory				7,100
Prepaid expenses				2,300
Total current assets				15,950
Long-term assets:
Investments				4,100
Raw materials and work in process inventory				3,350
Equipment				20,000
Accumulated depreciation—equipment				(5,300	)
Patent				?
Total assets			$	?
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable			$	6,300
Note payable				6,200
Interest payable—note				1,200
Deferred revenue				5,200
Total current liabilities				18,900
Long-term liabilities:
Bonds payable				6,600
Interest payable—bonds				500
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 1.3. That is, total liabilities are 130% of total shareholders’ equity. Retained earnings at the beginning of the year was $6,200. Net income for 2018 was $2,100 and $500 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 $1,550 each.

Deferred revenue will be recognized as revenue equally over the next two fiscal years.

The common stock represents 500,000 shares of no par stock authorized, 360,000 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

Assets
Current assets:
Cash	2,350
Accounts receivable	5,700
Allowance for uncollectible accounts	-1500
Finished goods inventory	7,100
Prepaid expenses	2,300
Investment	4100
Total current assets	20,050
Long-term assets:
Raw materials and work in process inventory	3,350
Equipment	20,000
Accumulated depreciation—equipment	-5300
Patent	7900	(46000-38100)
Total assets	46,000
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	6,300
Notes payable	1,550
Interest payable—note	1,200
Interest payable—bonds	500
Deferred revenue	2,600
Total current liabilities		12,150
Long-term liabilities:
Bonds payable		6,600
Notes payable		4650	(6200-1550)
Deferred revenue		2600	(5200/2)
Shareholders’ equity:
Common stock	12200
Retained earnings	7800	20000
Total liabilities and shareholders’ equity		46,000
Total liabilities	26000	(18900+6600+500)
Stockholders equity	20000	(26000/1.3)
Retained earnings
Beginning	6200
net income	2100
Dividend	-500
Ending	7800