Preparing a Balance Sheet and Statement of and Statement of Cash Flows; Effects of Business Transactions
The balance sheet items for The City Butcher (arranged in alphabetical order) were as follows at July 1, 2011. (You are to compute the missing figure for Retained Earnings.)
Accounts Payable | $7,000 | Equipment and Fixtures | $25,000 |
Accounts Receivable | 8,200 | Land | 50,000 |
Building | 90,000 | Notes Payable | 40,000 |
Capital Stock | 100,000 | Salaries Payable | 3,700 |
Cash | 4,100 | Supplies | 7,000 |
During the next few days, the following transactions occurred:
July 4 Additional capital stock was sold for $30,000. The accounts payable were paid in full. (No payment was made on the notes payable or salaries payable.)
July 5 Equipment was purchased at a cost of $6,000 to be paid within10 days. Supplies were purchased for $1,000 cash from a restaurant supply center that was going out of business. These supplies would have cost $2,000 if purchased through normal channels.
a. Prepare a balance sheet at July 1,2011.
b. Prepare a balance sheet at July 5, 2011, and a statement of cash flows for July 1–5. Classify the payment of accounts payable and the purchase of supplies as operating activities.
c. Assume the notes payable do not come due for several years. Is The City Butcher in a stronger financial position on July 1 or on July 5? Explain briefly.
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