Question

The following balance sheet for the Los Gatos Corporation was prepared by a recently hired accountant. In reviewing the statement you notice several errors.LOS GATOS CORPORATIONBalance SheetAt December 31, 2018Assets Cash $ 72,000 Accounts receivable 128,000 Inventories 71,000 Machinery (net) 136,000 Franchise (net) 46,000 Total assets $ 453,000 Liabilities and Shareholders’ Equity Accounts payable $ 82,000 Allowance for uncollectible accounts 21,000 Note payable 87,000 Bonds payable 126,000 Shareholders’ equity 137,000 Total liabilities and shareholders’ equity $ 453,000 Additional information:Cash includes a $36,000 restricted amount to be used for repayment of the bonds payable in 2022.The cost of the machinery is $222,000.Accounts receivable includes a $36,000 note receivable from a customer due in 2021.The note payable includes accrued interest of $21,000. Principal and interest are both due on February 1, 2019.The company began operations in 2013. Income less dividends since inception of the company totals $51,000.66,000 shares of no par common stock were issued in 2013. 200,000 shares are authorized.Required:Prepare a corrected, classified balance sheet. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

LOS GATOS CORPORATION

Corrected Classified Balance Sheet

At December 31, 2018

Assets

Cash $ 36,000

Accounts receivable 92,000

Note receivable 36,000

Inventories 71,000

Machinery (net) 136,000

Franchise (net) 46,000

Total assets $ 417,000

Liabilities and Shareholders’ Equity

Accounts payable $ 82,000

Allowance for uncollectible accounts (21,000)

Note payable (principal) 66,000

Bonds payable 105,000

Shareholders’ equity 185,000

Total liabilities and shareholders’ equity $ 417,000

Step-by-step explanation:

The corrected classified balance sheet reflects adjustments to rectify errors in the initial balance sheet. Cash has been adjusted to $36,000 to account for the restricted amount reserved for bond repayment. Accounts receivable now includes the note receivable of $36,000, while the allowance for uncollectible accounts is deducted from the accounts receivable to accurately represent the net realizable value.

The note payable's principal amount has been adjusted to $66,000, excluding the accrued interest. The bond payable is adjusted to $105,000, considering the interest that has been accrued and is due. Shareholders' equity has been recalculated, accounting for income less dividends since the company's inception, totaling $51,000, and the issuance of 66,000 shares of no par common stock in 2013, resulting in a revised shareholders' equity of $185,000.

These corrections ensure that the balance sheet presents a more accurate depiction of the company's financial position, incorporating the adjustments for restricted cash, accrued interest, note receivable, and the impact of income less dividends and common stock issuance on shareholders' equity.

Answer 2

2018 Balance Sheet

$36,000 Cash

$36,000 Cash Restricted

$92,000 Accounts Receivable

-$21,000 Less Allowance for uncollectible accounts

$71,000 Inventory

$214,000 TOTAL CURRENT ASSETS

$36,000 Accounts Receivable

$200,000 Machinery

-$64,000 Accum Depreciation

$46,000 Franchise

$218,000 TOTAL NONCURRENT ASSETS

$432,000 TOTAL ASSETS

$82,000 Accounts Payable

$66,000 Notes Payable

$21,000 Accrued Interest

$169,000 TOTAL CURRENT LIABILITIES

$126,000 Bond Payable

$126,000 TOTAL NONCURRENT LIABILITIES

$295,000 TOTAL LIABILITIES

$51,000 Retained Earnings

$86,000 Shareholders' Equity

$137,000 TOTAL EQUITY

$432,000 TOTAL EQUITY + LIABILITIES

Step-by-step explanation:

The account allowance for uncollectible accounts is reclassified from liabilities to assets because it's a contra-assets account that impact in the balance of accounts receivable.

The cash account was split between the cash available and the cash restricted

The cost of machinery let us find the total depreciation value up to date, Machinery net value $136,000 - $200,000 cost of machinery equals to depreciation of -$64,000.

The account receivable that due in 2021 it's reclassified as non current assets, because it's liquidity it's more than a year.

Accrued interest are deducted of Note Payable to be presented as an independent account.

The Note payable and the accrued interest are keeped in current liabilities because its due date is on 2019.

The Bond Payable account it's reclassified to long term liabilities because it's indicated that it due in 2022,

Retained Earning account arise of the income less dividends paid since the inception of the company.