Question

Problem 3-10 Balance sheet preparation [LO3-2, 3-3] Melody Lane Music Company was started by John Ross early in 2018. Initial capital was acquired by issuing shares of common stock to various investors and by obtaining a bank loan. The company operates a retail store that sells records, tapes, and compact discs. Business was so good during the first year of operations that John is considering opening a second store on the other side of town. The funds necessary for expansion will come from a new bank loan In order to approve the loan, the bank requires financial statements John asks for your help in preparing the balance sheet and presents you with the following information for the year ending December 31, 2018 a. Cash receipts consisted of the following: From customers From issue of common stock From bank loan $380,850 105,000 102,000 b. Cash disbursements were as follows Purchase of inventory Rent Salaries Utilities Insurance Purchase of equipment and furniture $301,000 30,000 31,000 6,000 4,000 41,000 c. The bank loan was made on March 31, 2018. A note was signed requiring payment of interest and principal on March 31, 2019. The interest rate is 10%. d. The equipment and furniture were purchased on January 3, 2018, and have an estimated useful life of 5 years with no anticipated salvage value. Depreciation per year is $8,200 e. Inventories on hand at the end of the year cost $101,000 f. Amounts owed at December 31, 2018, were as follows To suppliers of inventory To the utility company 2,000 $21,000 g. Rent on the store building is $2,000 per month. On December 1, 2018, four months' rent was paid in advance h. Net income for the year was $77,000. Assume that the company is not subject to federal, state, or local income tax i. Two hundred thousand shares of no par common stock are authorized, of which 21,000 shares were issued and are outstanding

Answer 1

Melody Lane Music Company
Balance Sheet
At December 31, 2018
Assets
Current assets:
Cash (1)		$174,850
Inventories		101,000
Prepaid rent		6,000
Total current assets		281,850
Property, plant, and equipment:
Equipment and furniture	$ 41,000
Less: Accumulated depreciation	(8,200)
Net property, plant, and equipment		32,800
Total assets		$314,650
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable (2)		$23,000
Interest payable		7,650
Loan payable		102,000
Total current liabilities		132,650
Shareholders’ equity:
Common stock, no par, 200,000 shares
authorized, 21,000 shares issued and outstanding	$105,000
Retained earnings (3)	77,000
Total shareholders’ equity		182,000
Total liabilities and shareholders’ equity		$314,650
(1) Cash receipts of $587,850 less cash disbursements of $413,000
(2) $21,000 owed to suppliers + $2,000 owed to utility company
(3) Net income for the year