Everclean Janitorial Service was started 2 years ago by Lauren Baird. Because business has been exceptionally good, Lauren decided on July 1, 2014, to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion, Lauren obtained on July 1, 2014, a $25,000, 10% bank loan, payable $10,000 on July 1, 2015, and the balance on July 1, 2016. The terms of the loan require the borrower to have $10,000 more current assets than current liabilities at December 31, 2014. If these terms are not met, the bank loan will be refinanced at 15% interest. At December 31, 2014, the accountant for Everclean Janitorial Service prepared the balance sheet shown below.
Lauren presented the balance sheet to the bank’s loan officer on January 2, 2015, 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.
=,