Jane Doe started ABC Company on $1/1/17.$ The company has a $12/31$ year$-$end.

Recently, Jane expanded operations. To finance the expansion, she obtained a loan on April $1,2019.$ She

issued a $$72,000,10\%$ note, payable in three principal installments of $$24,000$ each with the first one

due on April $1,2020.$ The terms of the loan require the borrower to have a current ratio of no less than

$2\mathrm{.}18$:$1$ and an acid$-$test ratio of at least $1\mathrm{.}2$:$1.$ If these terms are not met, the bank loan will be refinanced

at $15\%$ interest. On December $31,2019,$ Jane's bookkeeper prepared the following balance sheet.

Before submitting the financial statements to the loan officer, Jane asks you, her CPA, to review them.

You realize that several adjustments have been omitted. Below is the information necessary to adjust

the books as of $\frac{12}{31}\frac{?}{2019}.$

The sales rep accepted a $$15,000$ deposit from a customer for goods to be delivered in January

The bookkeeper recorded the receipt in Sales Revenue.

An aging schedule indicates that $$8,950$ of accounts receivable will be uncollectible.

The current replacement cost of the merchandise inventory is $$13,500.$

Supplies on hand $$3,200.$

Prepaid insurance was a $1-$year policy effective March $1,2019.$

December expenses incurred but unpaid on December $31,$$$5,000($Telephone Expense $$800$;

Janitorial Expense $$700$; Repairs and Maintenance Expense $$1,500$; Legal Expense $$2,000).$

Interest on the bank loan needs to be accrued.

The amounts for property, plant, and equipment presented on the balance sheet are the book

values as computed by the bookkeeper. She recorded depreciation for $2019$ but she is not sure of

the amount. Since you prepare Jane's tax return every year, you know that, as of $\frac{12}{31}\frac{?}{18},$ the

balance in the accumulated depreciation account$($s$)$ is correct.

The company uses the straight$-$line depreciation method. Information about the fixed assets is below

Instructions

Journalize the adjustments. You must show your work for the depreciation$-$related

adjustment$/$correction$.$ Showing your work means writing steps detailed enough that someone

with no prior knowledge of Bookkeeping or Financial Accounting could solve a similar problem.

Prepare the Balance Sheet using the adjusted$/$corrected account balances. You may not just

"plug" the Retained Earnings amount. You must include a schedule that shows the effects of the

adjustments on the Retained Earnings account.

Did Jane meet the terms of the loan?