Cases CASE 3-1 BRACTON BUILDERS, INC. Bracton Builders, Inc. is a building repair firm that specializes in restorations of historic buildings. The firm uses IFRS and was started by Jason Bracton approximately 3 years ago. Business has been brisk with a steady upturn in the local economy and Jason has plans to expand by hiring a part-time artisan and buying a used service truck. He has decided to finance the new operations by obtaining a $37,500 bank loan at 10% interest on July 1, 2011. The terms of the agreement are that $15,000 is payable on July 1, 2012 and the balance is due on July 1, 2013. The bank also requires that Bracton has $15,000 more current assets than current liabilities as of December 31, 2011. If this covenant is violated, then the interest will jump to 18% at that time. Bracton's accountant prepared the following statement of financial position and Jason presented it to the bank loan officer on January 2, 2012. The bank loan officer rejected the submission as insufficient, saying that the financial statement needed to be audited by a CPA. When a CPA was hired, he realized that the financial statement was erroneously prepared from a trial balance prior to period-end adjust- ments. During his investigation, he found that the following adjustments needed to be incorporated: Earned but unbilled restoration services were $5,550. 9 Building supplies on hand were $3,750. Prepaid insurance resulted from a 3-year policy dated January 1, 2011. December expenses incurred but unpaid at December 31 are $750. Interest on the bank loan was not recorded. The amounts for property, plant, and equipment presented in the statement of financial position were reported net of accumulated depreciation (cost less accumulated depreciation). These amounts were $6,000 for construction equipment and $7,500 for service trucks as of January 1, 2011. Depreciation for 2011 was $3,000 for construction equipment and $7,500 for service trucks. BRACTON BUILDERS, INC. Statement of Financial Position Assets December 31, 2011 Equity and Liabilities Property, plant, and equipment Service Trucks (net) Total property, plant, and Equity Construction Equipment (net) $ 33,000 51,000 Share capital-ordinary Retained Earnings $60,000 21,000 $ 81,000 Non-current liability equipment Current assets $4,000 Notes Payable 22,500 Current Liabilities Prepaid Insurance 7,200 Building Supplies 7,800 Notes Payable Accounts Payable 15,000 3.750 18,750 Accounts Receivable 13,500 Cash 9,750 Total Assets $122,250 Total equity and liabilities $122,250 Required a. Prepare a corrected statement of financial position. b. Explain whether the terms of the bank loan were met. CHAPTER 3 Balance Sheet