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Balance Sheet at end of April Cash -60,000                 Stock 400,000 Receivables 350,000 Inventories 280,000         Retained Earni

Balance Sheet at end of April

Cash -60,000                 Stock 400,000

Receivables 350,000

Inventories 280,000         Retained Earnings 170,000

Totals 570,000                Totals 570,000

Assume the owner, Derrick, got a loan in April to cover his cash shortfall. Also assume that sales in May, June, and July remained at 7,000 units per month and that all other assumptions in the problem remain the same (stock and costs/sales costs of the units). Construct Derrick's July balance sheet.

Units are sold for $5.00

Production cost per unit is $4.00

I've seen a couple solutions to this problem, but they don't seem to add up for me. I could be wrong. None of the solutions include a new liability equaling 60,000 to offset the shortfall of -60,000.

Solutions

Expert Solution

The Balance sheet immediately after availing the loan would be:
Assets Total liabilities and equity
Cash $                 -   Loan $         60,000
Receivables $    3,50,000 Stock $      4,00,000
Inventories $    2,80,000 Retained earnings $      1,70,000
Total assets $    6,30,000 $      6,30,000
Balance sheet at the end of JULY
Assets Total liabilities and equity
Cash $        21,000 Loan $         60,000
Receivables $    3,50,000 Stock $      4,00,000
Inventories $    2,80,000 Retained earnings [170000+1*21000] $      1,91,000
Total assets $    6,51,000 $      6,51,000

jeff jeffy answered 9 months ago
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