The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise the balance sheet. SANDERSON MANUFACTURING COMPANY Balance Sheet At December 31, 2021 ($ in 000s) Assets Current assets: Cash $ 1,250 Accounts receivable 3,500 Allowance for uncollectible accounts (400 ) Finished goods inventory 6,000 Prepaid expenses 1,200 Total current assets 11,550 Long-term assets: Investments 3,000 Raw materials and work in process inventory 2,250 Equipment 15,000 Accumulated depreciation (4,200 ) Patent (net) ? Total assets $ ? Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $ 5,200 Notes payable 4,000 Interest payable (on notes) 100 Deferred revenue 3,000 Total current liabilities 12,300 Long-term liabilities: Bonds payable 5,500 Interest payable (on bonds) 200 Shareholders’ equity: Common stock $ ? Retained earnings ? ? Total liabilities and shareholders’ equity ? Additional information ($ in 000s): Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.2. That is, total liabilities are 120% of total shareholders’ equity. Retained earnings at the beginning of the year was $4,000. Net income for 2021 was $1,560 and $560 in cash dividends were declared and paid to shareholders. Management intends to sell the investments in the next six months. Interest on both the notes and the bonds is payable annually. The notes payable are due in annual installments of $1,000 each. Deferred revenue will be recognized as revenue equally over the next two fiscal years. The common stock represents 400,000 shares of no par stock authorized, 250,000 shares issued and outstanding. Required: Prepare a complete, corrected, classified balance sheet
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the company’s controller. As
| SANDERSON MANUFACTURING COMPANY Balance Sheet At December 31, 2021 ($ in 000s) |
|||||
| Assets | |||||
| Current assets: | |||||
| Cash | $ | 1,250 | |||
| Accounts receivable | 3,500 | ||||
| Allowance for uncollectible accounts | (400 | ) | |||
| Finished goods inventory | 6,000 | ||||
| Prepaid expenses | 1,200 | ||||
| Total current assets | 11,550 | ||||
| Long-term assets: | |||||
| Investments | 3,000 | ||||
| Raw materials and work in process inventory | 2,250 | ||||
| Equipment | 15,000 | ||||
| (4,200 | ) | ||||
| Patent (net) | ? | ||||
| Total assets | $ | ? | |||
| Liabilities and Shareholders’ Equity | |||||
| Current liabilities: | |||||
| Accounts payable | $ | 5,200 | |||
| Notes payable | 4,000 | ||||
| Interest payable (on notes) | 100 | ||||
| Deferred revenue | 3,000 | ||||
| Total current liabilities | 12,300 | ||||
| Long-term liabilities: | |||||
| Bonds payable | 5,500 | ||||
| Interest payable (on bonds) | 200 | ||||
| Shareholders’ equity: | |||||
| Common stock | $ | ? | |||
| ? | ? | ||||
| Total liabilities and shareholders’ equity | ? | ||||
Additional information ($ in 000s):
- Certain records that included the account balances for the patent and shareholders’ equity items were lost. However, the controller told you that a complete, preliminary balance sheet prepared before the records were lost showed a debt to equity ratio of 1.2. That is, total liabilities are 120% of total shareholders’ equity. Retained earnings at the beginning of the year was $4,000. Net income for 2021 was $1,560 and $560 in cash dividends were declared and paid to shareholders.
- Management intends to sell the investments in the next six months.
- Interest on both the notes and the bonds is payable annually.
- The notes payable are due in annual installments of $1,000 each.
- Deferred revenue will be recognized as revenue equally over the next two fiscal years.
- The common stock represents 400,000 shares of no par stock authorized, 250,000 shares issued and outstanding.
Required:
Prepare a complete, corrected, classified balance sheet
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