Melody Lane Music Company was started by John Ross early in 2018. Initial capital was acquired by issuingshares of common stock to various investors and by obtaining a bank loan. The company operates a retail storethat sells records, tapes, and compact discs. Business was so good during the first year of operations that John isconsidering opening a second store on the other side of town. The funds necessary for expansion will come froma new bank loan. In order to approve the loan, the bank requires financial statements.John asks for your help in preparing the balance sheet and presents you with the following information for theyear ending December 31, 2018:a. Cash receipts consisted of the following:From customers $360,000From issue of common stock 100,000From bank loan 100,000b. Cash disbursements were as follows:Purchase of inventory $300,000Rent 15,000Salaries 30,000Utilities 5,000Insurance 3,000Purchase of equipment and furniture 40,000c. The bank loan was made on March 31, 2018. A note was signed requiring payment of interest and principalon March 31, 2019. The interest rate is 12%.d. The equipment and furniture were purchased on January 3, 2018, and have an estimated useful life of 10 yearswith no anticipated salvage value. Depreciation per year is $4,000.e. Inventories on hand at the end of the year cost $100,000.f. Amounts owed at December 31, 2018, were as follows:To suppliers of inventory $20,000To the utility company 1,000g. Rent on the store building is $1,000 per month. On December 1, 2018, four months’ rent was paid in advance.h. Net income for the year was $76,000. Assume that the company is not subject to federal, state, or local income tax.i. One hundred thousand shares of no par common stock are authorized, of which 20,000 shares were issuedand are outstanding.Required:Prepare a balance sheet at December 31, 2018.
Melody Lane Music Company was started by John Ross early in 2018. Initial capital was acquired by issuing
shares of common stock to various investors and by obtaining a bank 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 necessary 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 preparing the
year ending December 31, 2018:
a. Cash receipts consisted of the following:
From customers $360,000
From issue of common stock 100,000
From bank loan 100,000
b. 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
c. The bank loan was made on March 31, 2018. A note was signed requiring payment of interest and principal
on March 31, 2019. The interest rate is 12%.
d. The equipment and furniture were purchased on January 3, 2018, and have an estimated useful life of 10 years
with no anticipated salvage value.
e. Inventories on hand at the end of the year cost $100,000.
f. Amounts owed at December 31, 2018, were as follows:
To suppliers of inventory $20,000
To the utility company 1,000
g. Rent on the store building is $1,000 per month. On December 1, 2018, four months’ rent was paid in advance.
h. Net income for the year was $76,000. Assume that the company is not subject to federal, state, or local income tax.
i. 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, 2018.
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