E5-6 (L02,3) (Corrections of a Balance Sheet) The bookkeeper for Geronimo Company has prepared the following balance sheet as of July 31, 2017.

GERONIMO COMPANY
Balance Sheet
As of July 31, 2017
Cash	\(69,000	Notes and accounts payable	\)44,000
Account receivable (net)	40,500	Long-term liabilities	75,000
Inventory	60,000	Stockholder’s equity	155,500
Equipment (net)	84,000
Patents	21,000
	\(274,500		\)274,500

The following additional information is provided.

1. Cash includes \(1,200 in a petty cash fund and \)15,000 in a bond sinking fund.

2. The net accounts receivable balance is comprised of the following two items: (a) accounts receivable \(44,000 and (b) allowance for doubtful accounts \)3,500.

3. Inventory costing \(5,300 was shipped out on consignment on July 31, 2017. The ending inventory balance does not include the consigned goods. Receivables in the amount of \)5,300 were recognized on these consigned goods.

4. Equipment had a cost of \(112,000 and an accumulated depreciation balance of \)28,000.

5. Income taxes payable of $6,000 were accrued on July 31. Geronimo Company, however, had set up a cash fund to meet this obligation. This cash fund was not included in the cash balance but was offset against the income taxes payable amount.

Instructions

Prepare a corrected classified balance sheet as of July 31, 2017, from the available information, adjusting the account balances using the additional information.

Step by step solution

01

Definition of Income Tax

The charges paid by the business entity earning income in the country’s government are known as income tax. It is charged on the benefits generated during the fiscal year.

02

Classified Balance Sheet

GERONIMO COMPANY
Balance Sheet
As of July 31, 2017
Cash	$52,800		Notes and accounts payable		$44,000
Add: Income tax offset	6,000	$58,800	Income tax payable		6,000
Petty cash		1,200
Account receivable	44,000	35,200	Long-term liabilities		75,000
Less: Inventory consigned receivables	(5,300)
Less: allowance for doubtful accounts	(3,500)		Stockholder’s equity		155,500
Inventory	60,000	65,300
Add: Consigned inventory	5,300
Bond sinking funds		15,000
Equipment	112,000	84,000
Less: Accumulated depreciation	(28,000)
Patents		21,000
		$280,500			$280,500

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