Question

Question 3 - Balance Sheets [22 points) Patriots, Inc. is a retail store that started on January 1, 2018. Initial capital was acquired by issuing shares of common stock and by obtaining a bank loan. The CFO, Tom Brady, has kept the records below and is asking for your help in preparing a balance sheet for the year ended December 31, 2018. • Cash receipts (January 1 - December 31, 2018) From customers From issuance of common stock From bank loan Total $484,800 195.000 120,000 $799,800 • Cash payments (January 1 - December 31, 2018) Purchase of inventory Rent Utilities Salaries Insurance Purchase of equipment Total $319,000 45,000 49,000 24,000 22.000 60,000 $519,000 • On March 31, 2018, Patriots borrowed $120,000 at 10%. The note is payable on March 31, 2023 with annual interest payments. • The equipment was purchased on January 1, 2018, and has an estimated useful life of 5 years with salvage value of $10,000. Equipment is depreciated using the straight-line method. • Inventory on hand at December 31, 2018 costs $119,000. • The following amounts are owed at December 31, 2018. o o $39,000 to inventory suppliers $3,000 to utility company • Rent for the retail space is $2,000 per month. $45,000 of rent was paid in advance on January 1. 2018 • Net income for the year was $104,800 (Ignore taxes). • 300,000 shares of no par common stock are authorized and 39.000 shares are issued and outstanding at December 31, 2018.

Answer 1

Patriots Inc Balance Sheet December 31, 2018 Assets Liabilities Current Assets Curred Liabilites Cash Inventory Prepaid Rent 280,800 119,000 21,000 Interest Payable Accounts payable 9000 42,000 Total Current Assef 420,800 Total current Liobiletes 51,000 Property Plant & Equipment Long Team Uability Notes Payable Bank bora Tota LT Liabilities 120,000 Equipment less: Acc. Dep Net 60,000 (10,ooo) 50,000 120,000 Stockholder's Equity Common stock 195,000 (266000 shara Author'sed, 39000 issued & outstanding Retained Earning 104,800 Total stockholden Equity 299,800 Tord 470,800 Total 470,800

Notes:

1. Cash in hand on 31 Dec 2018 = cash earned - cash spent = 799800 - 519000 = $ 280800
2. Closing inventory is given in question
3. Prepaid rent = rent paid - rent expense for the year = 45000 - (2000*12) = 45000 - 24000 = $ 21000
4. Dep on equipment = (Purchase price - salvage value) / No of years i.e. (60000-10000)/5 = $ 10,000
5. It is assumed that depreciation will be accumulated over the years.
6. Annual Interest on notes payable (every 31st march payable)= 120,000*10% = 12,000. Interest expenses for the year 2018 = 12000 * 9/ 12 = 9,000 (Interest from March 2018 to Dec 2018 i.e. 9 months)
7. Accounts payable is payables to inventory suppliers + utility = 39000 + 3000 = $ 42,0000
8. Notes payable of 120,000 is given in question.
9. Common stock of 195000 given in question.
10. Net profit for the year (shown as Retained earning in balance sheet) given in question.
11. total of balance sheet is $ 470,800