FINANCIAL STATEMENTS FOR A FAILED FIRM. Berkshire Novelties sold toys to retail stores. For the past 2 years Berkshire has not been successful in identifying toys that would be in demand. Therefore, Berkshire has been unprofitable. The December 31, 19x4, historical cost balance sheet for Berkshire appears below:

Because of its unprofitable operations, Berkshire must go out of business. Therefore, the historical cost balance sheet will have to be modified. Assume that in a “going-out- of-business sale” accounts receivable can be sold for cash at 60% of historical cost and inventory can be sold for cash at 10% of historical cost. None of the prepaid rent can be converted into cash.

REQUIRED:
Restate Berkshire’s balance sheet to incorporate the reductions from cost to current disposal values. Where will you make changes among liabilities and equity? l01

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ASSETS Cash Accounts receivable Inventory, toys Prepaid rent Total assets LIABILITIES AND EQUITY Accounts payable Notes payable Total liabilities $ 1,100 134,400 619,700 6,200 $761,400 Capital stock Retained earnings Total equity Total liabilities and equity $196,400 150,000 346,400 $300,000 115,000 415,000 $761,400