Clark Allen owns The Clark Haven, a small arts supply store. He recently approached the local bank for a loan to finance a planned expansion of his store. Allen prepared the balance sheet shown below and submitted it to one of the bank's loan officers in support of his loan application.
Instructions
1. Identify any errors in the balance sheet, and explain why they should be considered errors.
2. Prepare a corrected balance sheet in accordance with generally accepted accounting principles.
The Clark Haven
Balance Sheet
December 31, 2016
Assets
Cash ...................................... $ 14,400
Accounts Receivable ..................... 17,000
Inventory .................................. 41,000
Equipment (cost) ......................... 35,000
Personal Residence ..................... 208,000
Supplies ...................................... 2,160
Family Auto ............................... 40,000
Total Assets ............................ $357,560
Liabilities and Owner's Equity
Accounts Payable ................................. $ 17,450
Note Payable on Family Car ....................... 13,000
Mortgage on House ........................... 112,000
Clark Allen, Capital ........................... 215,110
Total Liabilities and Owner's Equity ...... $357,560
The following additional information was made available by Allen:
a. The inventory has an original cost of $32,900. It is listed on the balance sheet at the estimated selling price.
b. The cash listed on the balance sheet includes $3,700 in Clark Allen's personal account. The remainder of the cash is in the store's account.
c. The store recently purchased a delivery truck for $39,000, financed through a bank loan. The bank has legal title to the truck. To date, the store has paid $11,000 on the loan. Of the remaining $28,000 liability, $10,600 is current and the remainder long-term. Allen did not include the truck or the liability on the balance sheet because neither he nor the business owns it.
d. Depreciation allowable to date is $7,000 on the equipment and $5,000 on the truck.
Analyze: If Allen knew that $900 of accounts receivable was not collectible, what should be done to reflect this fact on the records of the business? On the balance sheet?