Whitegloves Janitorial Service was started 2 years ago by Jenna Olson. Because business has

been exceptionally good, Jenna decided on July 1, 2017, to expand operations by acquiring an additional

truck and hiring two more assistants. To fi nance the expansion, Jenna obtained on July 1, 2017, a

$25,000, 10% bank loan, payable $10,000 on July 1, 2018, and the balance on July 1, 2019. The terms of

the loan require the borrower to have $10,000 more current assets than current liabilities at December

31, 2017. If these terms are not met, the bank loan will be refi nanced at 15% interest. At December 31,

2017, the accountant for Whitegloves Janitorial Service Inc. prepared the balance sheet shown below.

(Attachment: Balance sheet.jpg)

Jenna presented the balance sheet to the bank?s loan offi cer on January 2, 2018, confi dent that the company had met the terms of the loan. The loan offi cer was not impressed. She said, ?We need fi nancial 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. 1. Unbilled janitorial services performed were $3,700. 2. Janitorial supplies on hand were $2,500. 3. Prepaid insurance was a 3-year policy dated January 1, 2017. 4. December expenses incurred but unpaid at December 31, $500. 5. Interest on the bank loan was not recorded. 6. The amounts for property, plant, and equipment presented in the balance sheet were reported net of accumulated depreciation (cost less accumulated depreciation). These amounts were $4,000 for cleaning equipment and $5,000 for delivery trucks as of January 1, 2017. Depreciation for 2017 was $2,000 for cleaning equipment and $5,000 for delivery trucks. Instructions With the class divided into groups, answer the following. (a) Prepare a correct balance sheet. (b) Were the terms of the bank loan met? Explain.

WHITEGLDVES JANITORIAL SERVICE Balance Sheet December 3 l, 2011' Assets Liabilities and Owner's Eguitg Current assets Current liabilities Cash $ 6,500 Notes payable $10,000 Accounts receivable 9,000 Accounts payable 2,500 SuPplf'c? 5:200 Total current liabilities 12,500 Prepalcl insurance 4,800 Longsterm liability Total cment assets 25,500 Notes payable 15,000 Property, plant, and equipment Total liabilities 21500 Equipment {net} 22,000 Owner's equity Delivery trucks (net) 34,000 Owner's capital 54,000 Total property, plant, and equipment 56,000 Total assets $81,500 Total liabilities and owner's equityr $81 ,500