GG Company was formed on January 1, 2017. On December 31, Gil Goodman, the owner, prepared a balance sheet:

Gil willingly admits that he is not an accountant. He is concerned that his balance sheet might not be correct. He gives you the following additional information:
1. The boat actually belongs to Gil Goodman, not to GG Company. However, because he thinks he might take customers out on the boat occasionally, he decided to list it as an asset of the company. To be consistent, he also listed as a liability of the company the personal bank loan that he took out to buy the boat.
2. Gil spent $15,000 to purchase more supplies than he usually does, because he heard that the price of the supplies was expected to increase. It did, and the supplies are now worth $20,000. He thought it best to record the supplies at $20,000, as that is what it would have cost him to buy them today.
3. Gil has signed a contract to purchase equipment in January 2018. The company will have to pay $5,000 cash for the equipment when it arrives and the balance will be payable in 30 days. Guy has already reduced Cash by $5,000 because he is committed to paying this amount.
4. The balance in G. Goodman, Capital is equal to the amount Gil originally invested in the company when he started it on January 1, 2017.
5. Gil paid $1,200 for a one-year insurance policy on December 31. He did not include it in the balance sheet because the insurance is for 2018 and not 2017.
6. Gil knows that a balance sheet needs to balance but on his first attempt he had $108,000 of assets and $83,000 of liabilities and owner's equity. He reasoned that the difference was the amount of profit the company earned this year and added that to the balance sheet as part of owner's equity.
Instructions
(a) Identify any corrections that should be made to the balance sheet, and explain why by referring to the appropriate accounting concept, assumption, or principle.
(b) Prepare a corrected balance sheet for GG Company.

TAKING IT FURTHER
Assume that Gil did not make any withdrawals from the company in 2017, nor any investments other than his initial investment of $25,000. What was the actual profit for the year?

Transcribed Image Text:

GG COMPANY Balance Sheet December 31, 2017 Assets Liabilities and Owners Equit Cash Accounts receivable Supplies 15,000 55,000 20,000 18,000 $108,000 Accounts payable Boat loan payable G. Goodman, capital Profit for 2017 45,000 13,000 25,000 25,000 $108,000 Boat