Question

INDE433 Assignment #1 The balance sheet items of the Original Mall Shop (arranged in alphabetical order) were as follows at the close of business on September 30, 2015: Accounts Payable.........$ 8,500 Accounts Receivable..... 1,250 Building . .. 45.500 Cash 7,400 Furniture and Fixtures 20.000 Land.. .......... .... Kay Martin Capital, Capital Notes Payable................ Supplies ....................... 555.000 54,000 ? 3.440 The transactions occurring during the first week of October were: Oct. 3 Martin invested an additional S 30,000 cash in the business. The accounts payable were paid in full but no payment was made on the notes payable) Oct 6. More furniture was purchased, on account at a cost of $18,000 to be paid within 30 days. Supplies were purchased for $1.000 cash from a restaurant supply center that was going to out of business. The supplies would have cost $1.875 if purchased under normal circumstances. Oct 1-6 Revenues of $5,500 were earned and paid in cash. Expenses required to earn the revenues of $4.000 were incurred and paid in cash (a) Prepare a balance sheet at September 30, 2015. (You will need to compute the missing figure for Notes Payable.) (b) Prepare a balance sheet at October 6, 2015. (c) Assume that the note payable does not come due for several years. Is the Original Malt Shop in a stronger financial position on September 30 or on October 6? Explain briefly.

Answer 1

1)
Balance Sheet As on Sep 20th 2015
Liabilities	Amount	Assets	Amount
Share Capital	54,000.00	Account Receivable	1,250.00
Account Payble	8,500.00	Cash	7,400.00
Notes Payable (Balancing)	70,090.00	Supplies	3,440.00
		Building	45,500.00
		Furniture & Fixtures	20,000.00
		Land	55,000.00
Total	132,590.00	Total	132,590.00
CA	12,090.00
CL	8,500.00
Liquidity Ratio	1.42235294
2)
Balance Sheet As on Oct 6th 2015
Liabilities	Amount	Assets	Amount
Share Capital (Note 4)	85,500.00	Account Receivable	1,250.00
Notes Payable	70,090.00	Cash (Note 3)	29,400.00
Account Payable (Note 5)	18,000.00	Supplies (Note 2)	4,440.00
		Building	45,500.00
		Furniture & Fixtures (Note 1)	38,000.00
		Land	55,000.00
Total	173,590.00	Total	173,590.00
CA	35,090.00
CL	18,000.00
Liquidity Raion	1.94944444
Note 1:
Furniture	20,000.00
Addition	18,000.00
Total	38,000.00
Note 2
Supplies	3,440.00
Addition	1,000.00
Total	4,440.00
Note 3
Cash	7,400.00
Add - Capital invested	30,000.00
Less - Accounts Payable	(8,500.00)
Less - Supplies purchases	(1,000.00)
Add - Revenues	5,500.00
Less - Expenses	(4,000.00)
Total Cash	29,400.00
Note 4
Capital	54,000.00
Add - Capital invested	30,000.00
Add - Profit (5500-4000)	1,500.00
Total	85,500.00

Note 5
Accounts payable	8,500.00
Paid in cash	(8,500.00)
Payable for furniture	18,000.00
Total	18,000.00

3)  We have calculated the Liquidity ration assuming Notes payable will not get due for several year. There are significant changes in the company's balance sheet. Cash has increased. Companies liquidity ration looks good on 6th Oct since the Current Assets are almost Double than Current Liabilities. Hence, we can conclude the Balance sheet as on 6th Oct is more stronger in financial position than the BS as on 30th Sep.