Question

LOS GATOS CORPORATION
Balance Sheet
At December 31, 2021
Assets
Cash	$	72,000
Accounts receivable		128,000
Inventory		71,000
Machinery (net)		136,000
Franchise (net)		46,000
Total assets	$	453,000
Liabilities and Shareholders’ Equity
Accounts payable	$	82,000
Allowance for uncollectible accounts		21,000
Notes payable		87,000
Bonds payable		126,000
Shareholders’ equity		137,000
Total liabilities and shareholders’ equity	$	453,000

Additional Information:

1. Cash includes a $36,000 restricted amount to be used for repayment of the bonds payable in 2025.
2. The cost of the machinery is $222,000.
3. Accounts receivable includes a $36,000 notes receivable from a customer due in 2024.
4. The notes payable balance includes accrued interest of $21,000. Principal and interest are both due on February 1, 2022.
5. The company began operations in 2016. Net income less dividends since inception of the company totals $51,000.
6. 66,000 shares of no par common stock were issued in 2016. 200,000 shares are authorized.

Required:
Prepare a corrected, classified balance sheet. Use the additional information to help determine appropriate classifications and account balances. The cost of machinery and its accumulated depreciation are shown separately. (Amounts to be deducted should be indicated by a minus sign.)

My question is how do get the balance for accounts receivable? When I subtracted the original accounts receivable balance($128,000) from the accounts receivable ($36,000) (#3 in the Additional information section). Its stating that the new balance of $92,000 is incorrect.

Answer 1

Note : I will be answering the question mentioned in the last 3 lines regarding accounts receivables.

The correct balance of accounts receivable is as follows :

Original Balance : 128,000 $

Less : Notes receivable balance to be transferred and shown separately as a non-current asset : -36,000 $

Less : Allowance for uncollectible accounts : -21,000 $

Corrected Balance of Accounts Receivable (128,000-36,000-21,000) = 71,000$

Please note that allowance for uncollectible accounts is never separately shown as a current liability in the balance sheet. It is always shown as a deduction from the accounts receivable. So this is how it would appear in the note explaining accounts receivable balance :

Note No. __ : Accounts Receivable
Particulars	Amount
Account Receivable Balance	92000
Less : Allowance for uncollectible accounts	-21000
Net Accounts Receivable	71000

Note : There is no other adjustment which is required to be made in accounts receivable on the basis of data provided in the question.