Preparing Financial Statements; Effects of Business Transaction
The balance sheet items of The Candy Shop (arranged in alphabetical order) were as follows at the close of the business on September 30, 2011:
Accounts Payable | $6,800 | Furniture and Fixtures | $9,000 |
Accounts Receivable | 5,000 | land | 72,000 |
Building | 80,000 | Notes Payable | ? |
Capital Stock | 100,000 | Retained Earnings | 19,100 |
Cash | 6,900 | Supplies | 3,000 |
The transactions occurring during the first week of October were:
Oct. 3 Additional capital stock was sold for $30,000. The accounts payable were paid in full. (No payment was made on the notes payable.)
Oct. 6 More furniture was purchased on account at a cost of $8,000, to be paid within 30 days. Supplies were purchased for $900 cash from a restaurant supply center that was going out of business. These supplies would have cost $2,000 if purchased under normal circumstances.
Oct 1–6 Revenues of $8,000 were earned and paid in cash. Expenses required to earn the revenues of $3,200 were incurred and paid in cash.
Instructions
a. Prepare à balance sheet at September 30, 2011. (You will need to compute the missing figure for Notes Payable.)
b. Prepare a balance sheet at October 6, 2011. Also prepare an income statement and a statement of cash flows for the period October 1–6, 2011. In your statement of cash flows, treat the purchase of supplies and the payment of accounts payable as operating activities.
c. Assume the notes payable do not come due for several years. Is The Candy Shop in a stronger financial position on September 30 or on October 6? Explain briefly.
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