Question

Michael Hamwey is a realtor. He organized the business as a corporation on August 16, 2017. The business received $65,000 cash from Hamwey and issued common stock. Consider the following facts as of August 31, 2017.
a.

Hamwey has $14,000 in his personal bank account and $63,000 in the business bank account.

b.

Hamwey owes $9,300 on a personal charge account at a local department store.

c.

Hamwey acquired business furniture for $10,500 on August 24. Of this? amount, the business owes $3,000 on accounts payable at August 31.

d.

Office supplies on hand at the real estate office total $4,000

e.

Hamwey?'s business owes $115,000 on a note payable for some land acquired for a total price of $159,000.

f.

HamweyHamwey?'s business spent $18,000 for a Realty GroupRealty Group

?franchise, which entitles him to represent himself as an agent.
Realty GroupRealty Group is a national affiliation of independent real estate agents. This franchise is a business asset.

g.

Hamwey owes $196,000 on a personal mortgage on his personal? residence, which he acquired in 2012 for a total price of $424,000.

Requirements

1. Prepare the balance sheet of the real estate business of

Michael Hamwey ?Realtor, Inc., at

August 31?, 2017.

2. Does it appear that the realty business can pay its? debts? How can you? tell?

3. Identify the personal items given in the preceding facts that should not be reported on the balance sheet of the business.

Requirement 1. Prepare the balance sheet of the real estate business of

Michael Hamwey ?Realtor, Inc., at August 31?, 2017.

? (Do not classify the balance sheet into current and? long-term sections. If a box is not used in the balance sheet leave the box? empty; do not select a label or enter a? zero.)

Answer 1

Answer:

1. Michael Hamwey Realtor Inc.

  Balance Sheet as at August 31 2017

Land $159,000

Furniture $10,500

RealtyGroup Franchise $18,000

Cash $65,000

Office Supplies $4,000

Accounts Payable $3,000

Liability for Land acquired $115,000

Net Assets = $138,500

Common Stock $65,000

2. no it wont be able to fulfill its debt obligation within 1 year without disposing of Assets or converting the loan to a long term liability

3. The Following items should not be included in the Balance sheet of the Realtor Inc because they are personal to Hamwey

a. Hamwey Bank balance $14,000

b. Hamwey bank balance in the Business Account $63,000

c. Hamwey's debt at local department store $9,300

d. Hamwey's Mortgage on his personal residence $196,000

Explanation:

1. Michael Hamwey Realtor Inc.

Balance Sheet as at August 31 2017

Land $159,000

Furniture $10,500

RealtyGroup Franchise $18,000

Cash $65,000

Office Supplies $4,000

Accounts Payable $3,000

Liability for Land acquired $115,000

Net Assets = $138,500

Common Stock $65,000

2. The Realtor Business looks unhealthy considering the Quick Ratio or working Capital ratio, and will be unable to fulfill its debt obligation without disposing of Assets or converting the Loan to a long term Liability.

Working Capital Ratio = (Bank + supplies in hand) divided by (the Accounts payable + Note Payable)

=$69,000/$118,000 = 0.58times

*assumption: note payable is assumed to fall due within 1 year

The Available resource in the Business isn't sufficient to meet its immediate obligations

3. The Following items should not be included in the Balance sheet of the Realtor Inc because they are personal to Hamwey

a. Hamwey Bank balance $14,000

b. Hamwey bank balance in the Business Account $63,000

c. Hamwey's debt at local department store $9,300

d. Hamwey's Mortgage on his personal residence $196,000