Complete the partial balance sheet on the bottom. Show all formulas and work. Al

Question

Complete the partial balance sheet on the bottom. Show all formulas and work. All information is provided but may not neccessarily be needed.

You have been asked to make some recommendations to a company regarding financing for an upcoming major expansion. The company has been very successful but they will need a major inflow of cash to purchase the fixed assets they need for the expansion and hire additional employees. They believe they will need at least $1,500,000 and have asked for your recommendations as to how they should obtain the necessary funds. They have also asked for depreciation schedules for the new assets they plan to purchase. Assume the split between Current Assets and Long Term Assets is 20% current and 80% long term.

Complete:

The company could issue 400,000 additional shares of $1 par value common stock for $4 per share The company will begin paying a dividend to ALL the common shareholders of $0.12 per share and this will continue into the future.

NFT Consulting and Sales Inc Post Closing Trial Balance October 31, 2018 Cash $              304,900 Accounts Receivable                    76,580 Allowance for Uncollectible Accounts $                  5,690 Supplies                    56,500 Inventory                    68,596 Prepaid Insurance                    57,890 Land                  260,000 Building                  550,000 Accumulated Depr – Building                    25,650 Office Equipment                  856,850 Accumulated Depr – Office Equip                    22,500 Computer Equipment                  556,500 Accumulated Depr - Computer Equip                    10,250 Accounts Payable                    56,560 Utilities Payable                    16,850 Wages Payable                    58,950 Interest Payable                    25,000 Long term Note Payable                 390,000 Mortgage Payable                 406,800 Common Stock ($1 par, 1,000,000,                 400,000 shares authorized, 400,000 issued      and outstanding) Retained Earnings              1,369,566 $           2,787,816 $          2,787,816

Explanation / Answer

The trial balance for 31-10-2018 is given so balance sheet can be prepared

Now considering expansion plan and adjustments accordingly following are the workings

---> actual funds raised are 1600000 (400000 shares issued at $4) out of which $1 is at par value and remaining $3 shall be share premium.

--> out of 1600000 , $916000 is invested(as given in question) in long term fixed assets which are shown as addition under head of respective assest

---> it is said that such long term fixed asstes comprise of 80% of the total investment in assets and the remaining 20% is for current assets

therefore current assets = 916000/80% * 20% = 229000 which is shown as addition in the head of current assets.

---> in absence of particular information the balance amount received from issuing shares is estimated to be used for additional employee cost which has to be reduced from retained earning as it is expense.

employee cost = 1600000-229000-916000 = 455000

----> Dividend payable = 0.12 * 800000 = 96000 is shown as payable and same is reduced from retained earnings

Depreciation schedule

(Note: in absense of useful life of originally owned assets the depreciation is calculated only on the additions)

Depreciation is not applicable for land as it is assumed to have unlimited useful life.

Depreciation on building was calculated as cost/useful life for the entire year 465500/30

Depreciation on office equiptment was calculated as cost/useful life for the entire year as it is used for more than 6 mionths 150500/4

Depreciation on Delivery equiptment is based on production =200000*12560/155470

Depreciation being expense is reduced from retained earnings and added to Accumulated Depreciation account.

Balance sheet after adjustments

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Balance Sheet as on 31-10-2018 taking in account the trial balance Liabilities Amount Amount Assets Amount Amount Common Stock ($1 par, 1,000,000,                  400,000 Land                   260,000 shares authorized, 400,000 issued              and outstanding)     Building                   550,000         Retained Earnings               1,369,566 Office Equipment                   856,850         Allowance for Uncollectible Accounts   $                  5,690 Computer Equipment                   556,500 Accumulated Depr – Building                     25,650 Delivery Equiptment         Cash   $              304,900 Accumulated Depr – Office Equip                     22,500 Accounts Receivable                     76,580     Supplies                     56,500 Accumulated Depr - Computer Equip                     10,250 Inventory                     68,596     Prepaid Insurance                     57,890 Accounts Payable                     56,560 Utilities Payable                     16,850 Wages Payable                     58,950 Interest Payable                     25,000 Long term Note Payable                  390,000 Mortgage Payable                  406,800         27,87,816 27,87,816

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