Preparing a Balance Sheet and Statement of Cash Flows; Effects of Business Transactions
The balance sheet items for Franklin Bakery (arranged in alphabetical order) were as follows at August 1, 2015. (You are to compute the missing figure for Retained Earnings.)
Accounts Payable | $16,200 | Equipment and Fixtures | $44,500 |
Accounts Receivable | 11,260 | Land | 67,000 |
Building | 84,000 | Notes Payable | 74,900 |
Capital Stock | 80,000 | Salaries Payable | 8,900 |
Cash | 6,940 | Supplies | 7,000 |
During the next two days, the following transactions occurred:
Aug. 2 | Additional capital stock was sold for $25,000. The accounts payable were paid in full. (No payment was made on the notes payable or salaries payable.) |
Aug. 3 | Equipment was purchased at a cost of $7,200 to be paid within 10 days. Supplies were purchased for $1,250 cash from a restaurant supply center that was going out of business. These supplies would have cost $1,890 if purchased through normal channels. |
Instructions
a. Prepare a balance sheet at August 1, 2015.
b. Prepare a balance sheet at August 3, 2015, and a statement of cash flows for August 1–3. 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 Franklin Bakery in a stronger financial position on August 1 or on August 3? Explain briefly.
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