Whitegloves Janitorial Service Inc. was started 2 years ago by Nancy Kohl. Becau
ID: 2441940 • Letter: W
Question
Whitegloves Janitorial Service Inc. was started 2 years ago by Nancy Kohl. Because
business has been exceptionally good, Nancy decided on July 1, 2008, to expand operations by
acquiring an additional truck and hiring two more assistants. To finance the expansion, Nancy
obtained on July 1, 2008, a $25,000, 10% bank loan, payable $10,000 on July 1, 2009, and the
balance on July 1, 2010. The terms of the loan require the borrower to have $10,000 more current
assets than current liabilities at December 31, 2008. If these terms are not met, the bank
loan will be refinanced at 15% interest. At December 31, 2008, the accountant forWhitegloves
Janitorial Service Inc. prepared the balance sheet shown on page 192.
Nancy presented the balance sheet to the bank’s loan officer on January 2, 2009, confident
that the company had met the terms of the loan. The loan officer was not impressed.
She said, “We need financial statements audited by a CPA.” A CPA was hired and immediately
realized that the balance sheet had been prepared from a trial balance and not from
an adjusted trial balance. The adjustment data at the balance sheet date consisted of the
following.
(1) Earned but unbilled janitorial services were $3,700.
(2) Janitorial supplies on hand were $2,500.
(3) Prepaid insurance was a 3-year policy dated January 1, 2008.
(4) December expenses incurred but unpaid at December 31, $500.
(5) Interest on the bank loan was not recorded.
(6) The amounts for property, plant, and equipment presented in the balance sheet were reported
net of accumulated depreciation (cost less accumulated depreciation). These
amounts were $4,000 for cleaning equipment and $5,000 for delivery trucks as of January 1,
2008. Depreciation for 2008 was $2,000 for cleaning equipment and $5,000 for delivery
trucks.
192 Chapter 4 Completing the Accounting Cycle
WHITEGLOVES JANITORIAL SERVICE INC.
Balance Sheet
December 31, 2008
Assets
Current assets
Cash $ 6,500
Accounts receivable 9,000
Janitorial supplies 5,200
Prepaid insurance 4,800
Total current assets 25,500
Property, plant, and equipment
Cleaning equipment (net) 22,000
Delivery trucks (net) 34,000
Total property, plant, and equipment 56,000
Total assets $81,500
_______________________________________________________
Liabilities and Owner’s Equity
Current liabilities
Notes payable $10,000
Accounts payable 2,500
Total current liabilities 12,500
Long-term liability
Notes payable 15,000
Total liabilities 27,500
Stockholders’ equity
Common stock 40,000
Retained earnings 14,000
Total stockholders’ equity 54,000
Total liabilities and stockholders’ equity $81,500
With new adjustments what balance do you come with.
Explanation / Answer
Liabilities and Owner’s Equity Assets Current liabilities Current assets Notes payable 10,000 Cash 6,500 Interest Payable 1,250 Accounts Receivables 9,000 Accounts Payables 2,500 Add : Unbilled Services 3,700 12,700 Add : December Expenses 500 Janiitoroal Supplies 5,200 Total current liabilities 14,250 Less : Adjustments -2,700 2,500 Long-term liability Prepaid Insurance 4,800 Notes Payable 15,000 Less : for 2008 -1,600 3,200 Total liabilities 29,250 Property, plant & equip. Cleaning Equipment 28,000 Stockholders’ equity Delivery Truck 44000 Common stock 40,000 72,000 Retained Earnings 11,650 51,650 Less : Accumulated Depr. -16,000 56,000 Total Liabilities & stockholders’ equity (40,000+11,650) 80,900 Total assets 80,900
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