Explore BrainMass

Explore BrainMass

    The Preparation of a Balance Sheet

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    The chief financial officer (CFO) of SuperClean Corporation requested that the accounting department prepare a preliminary balance sheet on December 30, 2007, so that the CFO could get an idea of how the company stood. He knows that certain debt agreements with its creditors require the company to maintain a current ratio of at least 2:1. The preliminary balance sheet is as follows:

    SUPERCLEAN CORP.
    Balance Sheet
    December 30, 2007
    Current assets Current liabilities
    Cash $30,000 Accounts payable $ 25,000
    Accounts receivable 20,000 Salaries payable 15,000 $ 40,000
    Prepaid insurance 10,000 $ 60,000 Long-term liabilities
    Notes payable 80,000
    Total liabilities 120,000
    Property, plant, and equipment (net) 200,000 Stockholders' equity
    Total assets $260,000 Common stock 100,000
    Retained earnings 40,000 140,000
    Total liabilities and stockholders equity $260,000

    Instructions (show work)
    (a) Calculate the current ratio and working capital based on the preliminary balance sheet.
    (b) Based on the results in (a), the CFO requested that $25,000 of cash be used to pay off the balance of the accounts payable account on December 31, 2007. Calculate the new current ratio and working capital after the company takes these actions.
    (c) Discuss the pros and cons of the current ratio and working capital as measures of liquidity.
    (d) Was it unethical for the CFO to take these steps?

    © BrainMass Inc. brainmass.com June 3, 2020, 9:20 pm ad1c9bdddf
    https://brainmass.com/business/financial-statements/the-preparation-of-a-balance-sheet-177156

    Solution Preview

    For your convenience, I have attached a formatted MS Excel spreadsheet containing the information posted below. Feel free to contact me in the future in the event that additional assistance is required.

    Super Clean Corporation Accounting example
    The chief financial officer (CFO) of SuperClean Corporation requested that the accounting
    department prepare a preliminary balance sheet on December 30, 2007, so that the
    CFO could get an idea of how the company stood. He knows that certain debt agreements
    with its ...

    Solution Summary

    This file contains a formatted MS Excel spreadsheet which highlights the steps which must be taken in the preparation of a balance sheet.

    $2.19

    ADVERTISEMENT