Question

Question 6

(20 marks)

Janet Jones is a professional gym instructor. She started her own business, Janet’s Gym, a proprietorship, in 2014. Consider the following facts, as of December 31, 2018:

1. Janet’s Gym owned a small gym, which it acquired for $ 600,000 in 2018; the land was worth $ 500,000, and the building was worth $ 100,000. The business took out a $ 520,000 mortgage, and Janet Jones contributed the remaining $ 80,000 cash to buy the property.
2. In 2018, Janet’s Gym spent $ 15,000 to acquire a gym franchise, Gym to Go.
3. Janet Jones had $ 15,000 in the business bank account and $ 7,000 in her personal bank account.
4. Janet Jones owed $ 1,900 on her personal MasterCard.
5. Janet’s Gym acquired $ 10,000 in gym equipment on December 15, 2018: Janet’s Gym put a down payment of $ 2,000 and was going to pay the remaining balance in January, 2019.
6. Janet’s Gym had $ 400 in office supplies on hand at December 31, 2018.
7. Janet Jones bought a condo in 2016 for $ 400,000. At December 31, 2018, her mortgage on the condo was $ 300,000.

Required:

1. Janet’s Gym was researching liability exposure. What advice can you provide to Janet’s Gym?
2. What items above would not appear on the financial statements of Janet’s Gym?
3. Prepare the December 31, 2018 balance sheet of Janet’s Gym.

Answer 1

As information regarding income is not provided in the information then we need to find the same by balancing figure in capital account and also it is assumed that all transaction expect informed are in cash.

A. Janet’s Gym has following liabilities as on 31.12.2018

1. Mortgage Loan : $ 520,000

2. Gym Equipment on Loan : $ 8,000

B. 1. $ 7,000 in her personal bank account ( it's personal nature)

2.$ 1,900 on her personal MasterCard. ( it's personal nature)

3. Janet Jones bought a condo in 2016 for $ 400,000. At December 31, 2018, her mortgage on the  condo was $ 300,000.( this is related to start the business).

C.

Liabilities	Amount	Assets	Amount
Capital	87400	Land	500000
Mortgage Loan	520000	Building	100000
Equipment Loan	8000	Bank	15000
		Supplies	400
Total	615400	Total	615400
* Capital Account is Balance Amount