Recast Frosty Footwear's balance sheet for the last year, considering the balance sheet adjustments for the asset approach to business value. Recommend a business value using the asset approach.

10. In reviewing Frosty Footwear's 2007 balance sheet with the owners, Gary identified $25,000 of scrap inventory still on the books. 11. Accelerated depreciation had been used for income tax purposes (Internal Revenue Code $ 168) but straight-linc depreciation would have been $198,845 less over the years of fixed assets' ownership. 12. None of the other assets, except the patent and trademark costs (net book value of $10,000), had any future value to potential buyers. 13. All the accrued interest payable related to the shareholder loans, which would all be reclassified as stockholders equity if the company was sold. Exhibit 2: Frosty Footwear Inc. Balance Sheets for Years 2006-2007 12/31/2007 12/31/2006 $ Current Assets Cash Accounts Receivable (net 5,000) Inventory Prepaid Expenses $ 503,443 613,485 852,343 391,347 610,525 654,684 33,035 Total Current Assets $1,969,271 $ 1,689,591 Property, Plant & Equipment Leasehold Improvements Furniture & Fixtures Machinery & Equipment Vehicles 5,120 33,075 263,045 24,109 5,120 73,138 254,681 24,109 Total PPE Accumulated Depreciation 325,349 -305,296 357,048 -323,812 Net PPE 20,053 33,236 Other Assets Patent & Trademark Costs Non-Compete Agreement Loan Fees Accumulated Amortization 15,262 189,000 15,262 189,000 4,375 -80,850 -68,250 Total Other Assets 127,787 136,012 Total Assets $2,117,111 $ 1.858.839 $ Current Liabilities Accounts Payable Sales Tax Payable Accrued Commissions Accrued Interest Line of Credit Payable 80,937 17,972 21,639 90, 156 200,000 71.367 10,639 18,404 163,310 21,500 Total Current Liabilities 410,704 285,220 Long-Term Liabilities Note Payable-Bank Shareholder Loans 425.000 637,193 129,685 837,478 Total Long-Term Liabilities 1,062,193 967,163 Total Stockholders Equity 644,214 606,456 Total Liabilities & Equity $2,117,111 $ 1,858,839 DE G 2 Frosty Footwear Inc. 3 Recasted Balance Sheets for 2007 12/31/2007 Ref Adjust. Recasted $ 5 Current Assets 6 Cash 7 Accounts Receivable 8 Inventory 9 Prepaid Expenses 10 Total Current Assets 503,443 613,485 852.343 0 $ 1,969,271 11 5,120 33,075 263,045 24,109 325,349 -305,296 20,053 12 Property, Plant & Equipment 13 Leasehold Improvements 14 Furniture & Fixtures 15 Machinery & Equipment 16 Vehicles 17 18 Total PPE 19 Accumulated Depreciation 20 Net PPE 21 22 Other Assets 23 Patent & Trademark Costs 24 Non-Compete Agreement 25 Loan Fees 26 Accumulated Amortization 27 28 Total Other Assets 29 30 Total Assets 31 32 Current Liabilities 33 Accounts Payable 34 Sales Tax Payable 35 Accrued Commissions 36 Accrued Interest 37 Line of Credit Payable 38 Product Liability 39 Total Current Liabilities 15,262 189,000 4,375 -80,850 127,787 $ 2,117,111 $ 80.937 17,972 21,639 90,156 200,000 0 410,704 40 425,000 637,193 41 Long-Term Liabilities 42 Note Payable-Bank 43 Shareholder Loans 44 45 Total Long-Term Liabilities 46 47 Total Stockholders Equity 1,062,193 644,214 48 49 Total Liabilities & Equity $ 2,117,111