Melody lane music company was started by john ross early in 2016. Initial capital was acquired by issuing shares of common stock
to various investors and by obtaining a loan. The company operates a retail store that sells records, tapes, and compact discs. Business was so good during the first year of operations that john is considering opening a second store on the other side of town. The funds neccesarry for expansion will come from a new bank loan. In order to approve the loan the bank requires financial statements. John asks for your help in prepareing the balance sheet and presents you with the following information for the year ending December 31 2016:
Cash receipts consist of the following,
From costumers $360,000
From issue of common stock 100,00
From bank loan 100,000
Cash disbursements were as follows:
Purchase of inventory 300,000
Rent 15,000
Salaries 30,000
Utilities 5,000
Insurance 3,000
Purchase of equipment and furniture 40,000
The bank loan was made on march 31 2016 a note was signed requiring payment of interest and principle on march 31 2017. The interest rate is 12%
The equipment and furniture were purchased on January 3 2016 and have an estimated useful life of 10 years with no anticipated salvage value. Depreciation per year is 4,000
Inventories on hand at the end of the year cost 100,000
Amounts owed at December 31, 2016 were as follows
To supliers of inventory $20,000
To the utility company $1,000
Rent on the store building is 1,000 per month. On Dec 1, 2016 four months rent was paid in advance.
Net income for the year was $76,000. Assume that the company is not subject to federal state or local income tax.
One hundred thousand shares of no par common stock are authorized, of which 20,000 shares were issued and are outstanding
Required: prepare a balance sheet at December 31, 2016.
Cash receipts consist of the following,
From costumers $360,000
From issue of common stock 100,00
From bank loan 100,000
Cash disbursements were as follows:
Purchase of inventory 300,000
Rent 15,000
Salaries 30,000
Utilities 5,000
Insurance 3,000
Purchase of equipment and furniture 40,000
The bank loan was made on march 31 2016 a note was signed requiring payment of interest and principle on march 31 2017. The interest rate is 12%
The equipment and furniture were purchased on January 3 2016 and have an estimated useful life of 10 years with no anticipated salvage value. Depreciation per year is 4,000
Inventories on hand at the end of the year cost 100,000
Amounts owed at December 31, 2016 were as follows
To supliers of inventory $20,000
To the utility company $1,000
Rent on the store building is 1,000 per month. On Dec 1, 2016 four months rent was paid in advance.
Net income for the year was $76,000. Assume that the company is not subject to federal state or local income tax.
One hundred thousand shares of no par common stock are authorized, of which 20,000 shares were issued and are outstanding
Required: prepare a balance sheet at December 31, 2016.
1 answer:
Answer/Explanation:
Note 2: Interest on Bank Loan
Interest = (Principal x Time x rate) / 100
Principal = $100,000;
Time = 9/12 = 0.75
Rate = 12%
Interest = (100,000 x 0.75 x 12) / 100 = 9,000
- See Note 1 and 3 on the attachment for the cash at hand and rent advance respectively.
Balance sheet (see attachment):
Total Assets = 36,000 + 100,000 + 167,000 + 3,000 = 306,000
Total Liability + Capital = 100,000 + 76,000 130,000 = 306,000
Conclusion:
The balance sheet as can be seen in the attachment that has been prepared, revealed that the company’s current assets is sufficient to meet its current liabilities. Therefore the bank runs no risk for giving the company the credit facilities.
You might be interested in