Balance Sheet at end of April Cash -60,000 Stock 400,000 Receivables 350,000 Inventories 280,000 Retained Earnings 170,000 Totals 570,000 Totals 570,000 Assume the owner, Derrick, got...

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Finance

Balance Sheet at end of April
Cash-60,000                Stock 400,000
Receivables 350,000
Inventories280,000         RetainedEarnings 170,000
Totals570,000               Totals 570,000
Assume the owner, Derrick, got a loan in April to cover his cashshortfall. Also assume that sales in May, June, and July remainedat 7,000 units per month and that all other assumptions in theproblem remain the same (stock and costs/sales costs of the units).Construct Derrick's July balance sheet.
Units are sold for $5.00
Production cost per unit is $4.00
I've seen a couple solutions to this problem, but they don'tseem to add up for me. I could be wrong. None of the solutionsinclude a new liability equaling 60,000 to offset the shortfall of-60,000.

Answer & Explanation Solved by verified expert

3.9 Ratings (580 Votes)

The Balance sheet immediately after availing the loan would be:
Assets		Total liabilities and equity
Cash	$ -	Loan	$ 60,000
Receivables	$ 3,50,000	Stock	$ 4,00,000
Inventories	$ 2,80,000	Retained earnings	$ 1,70,000
Total assets	$ 6,30,000		$ 6,30,000
Balance sheet at the end of JULY
Assets		Total liabilities and equity
Cash	$ 21,000	Loan	$ 60,000
Receivables	$ 3,50,000	Stock	$ 4,00,000
Inventories	$ 2,80,000	Retained earnings [170000+1*21000]	$ 1,91,000
Total assets	$ 6,51,000		$ 6,51,000

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Balance Sheet at end of AprilCash-60,000 Stock 400,000Receivables 350,000Inventories280,000 RetainedEarnings 170,000Totals570,000 Totals 570,000Assume the owner, Derrick, got a loan in April to cover his cashshortfall. Also assume that sales in May, June, and July remainedat 7,000 units per month and that all other assumptions in theproblem remain the same (stock and costs/sales costs of the units).Construct Derrick's July balance sheet.Units are sold for $5.00Production cost per unit is $4.00I've seen a couple solutions to this problem, but they don'tseem to add up for me. I could be wrong. None of the solutionsinclude a new liability equaling 60,000 to offset the shortfall of-60,000.