Critical Thinking 4-05 a-b Sandhill Janitorial Service was started 2 years ago by Jenna Olson. Because business has been exceptionally good, Jenna decided on July 1, 2020, to expand operations by acquiring an additional truck and hiring two more assistants. To finance the expansion, Jenna obtained on July 1, 2020, a $26,900, 10% bank loan, payable $10,700 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 Sandhill Janitorial Service Inc. prepared the balance sheet shown below. Sandhill Janitorial Service Balance Sheet December 31, 2020 Assets Liabilities and Owner's Equity Current assets Current liabilities Cash $6,000 Notes payable $10,700 Accounts receivable 8,400 Accounts payable 2,270 Supplies 6,200 Total current liabilities 12,970 Prepaid insurance 4,800 Long-term liability Total current assets 25,400 Notes payable 16,200 Property, plant, and equipment Total liabilities 29,170 Equipment (net) Owner's equity 21,400 Delivery trucks (net) Owner's capital 32,000 49.630 Total property, plant, and equipment 53,400 Total assets $78,800 Total liabilities and owner's equity $78,800 Jenna 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. Unbilled janitorial services performed were $3,630 Janitorial supplies on hand were $2,290. Prepaid insurance was a 3-year policy dated January 1, 2020. December expenses incurred but unpaid at December 31, $490. 1. 2. 3. 4. Interest on the bank loan was not recorded. 5. The amounts for property, plant, and equipment presented in the balance sheet were reported net of accumulated depreciation (cost less accumulated 6. depreciation). These amounts were $3,200 for cleaning equipment and $6,100 for delivery trucks as of January 1, 2020. Depreciation for 2020 was $1,870 for cleaning equipment and $4,400 for delivery trucks (a) Prepare a correct balance sheet. (List Current Assets in order of liquidity. List Property, Plant and Equipment in order of Equipment and Delivery Trucks.) SANDHILL 3ANITORIAL SERVICE Balance Sheet sOURCES 4-05 a ta) Prepare a correct balance sheet. (List Current Assets in order of liquidity, List Property, Plant and Equipment in order of Equipment and Delivery Trucks.) 2 de SANDHILL JANITORIAL SERVICE Balance Sheet ns 4 a-C ml-a3 -b Assets a-b by Study $ iabilities and Owner's Equity
