As controller for Henderson, you are attempting to reconstruct and revise the fo

Question

As controller for Henderson, you are attempting to reconstruct and revise the following balance sheet prepared by a staff accountant.

  

Additional information ($ in 000s):

1. Certain records that included the account balances for the franchise and shareholders' equity items were lost. However, a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.5. That is, total liabilities are 150% of total shareholders' equity. Retained earnings at the beginning of the year was $4,300. Net income for 2016 was $2,500, and $800 in cash dividends were declared and paid to shareholders.
2. The investments represent treasury bills purchased in December 2016 that mature in January 2017. These are considered cash equivalents.
3. Interest on both the note and the bonds is payable annually.
4. The note payable is due in annual installments of $800 each.
5. Deferred revenue will be earned equally over the next 18 months.
6. The common stock represents 500,000 shares of no par stock authorized, 300,000 shares issued and outstanding.

Required:

Prepare a complete, corrected, classified balance sheet.

Henderson Manufacturing Company Balance Sheet At December 31, 2016 ($ in 000s) Assets Current assets: Cash $ 1,600 Accounts receivable 4,300 Allowance for uncollectible accounts (500) Finished goods inventory 5,000 Prepaid expenses 2,400        Total current assets 12,800 Noncurrent assets:    Investments 2,000    Raw materials and work in process inventory 3,200 Equipment 18,000 Accumulated depreciation–equipment (8,000) Franchise         ? Total assets $       ? Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $6,200 Note payable 8,000 Interest payable–note 200 Deferred revenue 2,400       Total current liabilities 16,800 Long-term liabilities:    Bonds payable 7,000    Interest payable–bonds 200 Shareholders’ equity:    Common stock $    ?    Retained earnings      ?       ?    Total liabilities and shareholders’ equity       ?

Explanation / Answer

Answer: Solve for missing amounts:

Liabilities ÷ Equity = 1.5

$24,000 ÷ Equity = 1.5

Equity = $24,000 ÷ 1.5

= $16,000

Retained earnings=Opening retained earnings+Net income-Dividend

=$4300+$2500-$800=$6000

Henderson Manufacturing Company Balance Sheet At December 31, 2016 ($ in 000s) Assets Current assets: Cash & cash equivalents $1,600 Accounts receivable 4300 Allowance for uncollectible accounts 500 Accounts receivable, net of 3800 Finished goods inventory 5,000 Prepaid expenses 2,400        Total current assets 12800 Noncurrent assets:    Investments 2,000    Raw materials and work in process inventory 3,200 Equipment 18,000 Accumulated depreciation–equipment -8,000 Intangibles: Franchise 18000 Total assets 46000 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $6,200 Note payable 8,000 Interest payable–note 200 Deferred revenue 2,400       Total current liabilities 16,800 Long-term liabilities:    Bonds payable 7,000    Interest payable–bonds 200 Shareholders’ equity:    Common stock 16000    Retained earnings 6000 22000    Total liabilities and shareholders’ equity 46,000

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