Whitegloves Janitorial Service was started 2 years ago by Lynn Sanders. Because business has been exceptionally good, Lynn decided on July 1, 2020, to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion, Lynn obtained on July 1, 2020, a $25,000, 10% bank loan, payable $10,000 on July 1, 2021, and the balance on July 1, 2022. The terms of the loan require the borrower to have $10,000 more current assets than current liabilities at December 31, 2020. If these terms are not met, the bank loan will be refinanced at 15% interest. At December 31, 2020, the accountant for Whitegloves Janitorial Service Inc.?

Prepared the following balance sheet.

Lynn presented the balance sheet to the bank's loan officer on January 2, 2021, 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. Unbilled janitorial services performed were $3,700.

2. Janitorial supplies on hand were $2,500.

3. Prepaid insurance was a 3-year policy dated January 1, 2020.

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, 2020. Depreciation for 2020 was $2,000 for cleaning equipment and $5,000 for delivery trucks.

Instructions

With the class divided into groups, answer the following.

a. Prepare a correct balance sheet.

b. Were the terms of the bank loan met? Explain.

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Whitegloves Janitorial Service Balance Sheet December 31, 2020 Liabilities and Stockholders' Equity Assets Current assets Current liabilities Cash Notes payable $10,000 6,500 9,000 Accounts 2.500 Accounts payable receivable Supplies 5,200 Total current $12,500 |liabilities Prepaid insurance 4,800 Long-term liability $25,500 Notes payable Total current 15,000 assets Property, plant, and equipment Total liabilities 27,500 Equipment (net) 22,000 Stockholders' equity Delivery trucks |(net) 34.000 Common stock 30,000 Retained earnings 24.000 Total property, plant, and equipment 56,000 Total 54.000 stockholders' equity Total assets $81,500 Total liabilities $81,500 and stockholders' equity