Tom Baxter, sole owner and general manager of Lamrock Ltd., knew
that he was in trouble. Sally Hedger, the company’s accountant, had
slammed the door and walked out of the building yesterday
afternoon. Hedger had a temper that Baxter had observed in the
past, but nothing like the explosion that occurred yesterday. When
Hedger did not show up this morning, Baxter was pretty sure that he
had seen the last of her for this week. Unfortunately, Baxter had
to take a set of Lamrock Ltd.’s unaudited financial statements for
review to the bank tomorrow. This review was one of the conditions
the bank had put in place to maintain Lamrock’s loan agreement.
This was Lamrock’s fourth year in business, and Baxter relied
heavily on the bank’s willingness to finance the firm’s capital
investments needed for operations. He did not want to postpone the
bank meeting for fear that the loans manager would become concerned
about Lamrock’s outstanding loans. For several reasons, Baxter did
not want to bring in another accountant to prepare the statements:
the accountant would question every number; it was highly unlikely
that he could hire an accountant on such short notice; and the cost
would be prohibitive. Consequently, since Hedger had left a
printout with the names of the accounts and their final balances
for the fiscal year on her desk (see Exhibit 1), Baxter decided to
put into practice what he learned from his basic accounting course
five years ago. He planned to organize the accounts and their
balances and prepare the firm’s income statement, statement of
retained earnings and the balance sheet1 for the fiscal year ending
March 31, 2014. Since Hedger had not yet done March’s bank
reconciliation and Baxter did not have the necessary information to
do one, he would “plug” for the cash balance on the company’s
balance sheet.
- Lamrock Limited Tom Baxter Sole Owner And General Manager Of Lamrock Ltd Knew That He Was In Trouble Sally Hedger T 1 (104.88 KiB) Viewed 73 times
Exhibit 1 ACCOUNT NAMES AND BALANCES AT MARCH 31, 2014 $ Depreciation expense – warehouse and equipment Cash Retained Earnings April 1, 2013 Inventory, March 31, 2014 Selling Expenses Inventory, April 1, 2013 Income tax expense (estimate) Mortgage Loan – 6% (due 2020) Sales Land Other Expenses Common stock Prepaid expenses Loans - Equipment (due 2021) Dividends Accounts receivable Interest expense Warehouse and equipment at cost Accumulated depreciation – warehouse and equipment, April 1, 2013 Bank loan - demand note Taxes payable Accounts payable Other current liabilities Goodwill Administrative expenses Purchases Trading Investments (short-term) 60,000 ? 174,000 68,500 161,000 87,000 38,000 400,000 1,193,500 565,000 39,600 250,000 16,800 550,000 170,000 92,600 79,500 1,200,000 180,000 375,000 12,000 67,200 43,600 12,000 87,200 595,000 50,000