Problem

Preparing a Balance Sheet and Statement of and Statement of Cash Flows; Effects of Busines...

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.

Instructions

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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