Question:
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.
Additional Information ($ in 000s):
1. 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 2013 was $1,560 and
$560 in cash dividends were declared and paid to shareholders.
2. Management intends to sell the investments in the next six months.
3. Interest on both the note and the bonds is payable annually.
4. The note payable is due in annual installments of $1,000 each.
5. Unearned revenue will be earned equally over the next two fiscal years.
6. 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.
Answer:
Solve for missing amounts:
Liabilities Equity = 1.2
$18,000 Equity = 1.2
Equity = $18,000 1.2 = $15,000
Beginning retained earnings + Net income – Dividends = Ending retained earnings
$4,000 + 1,560 – 560 = $5,000
Total equity – Retained earnings = Common stock
The following incomplete balance sheet for the Sanderson Manufacturing Company was prepared by the
company’s controller. As accounting manager for Sanderson, you are attempting to reconstruct and revise
the balance sheet.
Additional Information ($ in 000s):
1. 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 2013 was $1,560 and
$560 in cash dividends were declared and paid to shareholders.
2. Management intends to sell the investments in the next six months.
3. Interest on both the note and the bonds is payable annually.
4. The note payable is due in annual installments of $1,000 each.
5. Unearned revenue will be earned equally over the next two fiscal years.
6. 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.
Answer:
Solve for missing amounts:
Liabilities Equity = 1.2
$18,000 Equity = 1.2
Equity = $18,000 1.2 = $15,000
Beginning retained earnings + Net income – Dividends = Ending retained earnings
$4,000 + 1,560 – 560 = $5,000
Total equity – Retained earnings = Common stock
