Chapter 3, Problem 3.10P

To determine

Balance sheet:

Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

To prepare: Balance sheet of the MLM Company for the year ended December 31, 2018.

Explanation of Solution

Prepare a balance sheet of MLM Company for the year ended December 31, 2018.

MLM Company
Balance sheet
For the year ended December 31, 2018
	Amount in $	Amount in $
Assets:
Current assets:
Cash                                                       (1)	167,000
Inventories	100,000
Prepaid rent	3,000
Total current assets:		576,000
Property, plant and equipment:
Equipment and furniture	40,000
Less: accumulated depreciation	4,000
Net property , plant and equipment:		36,000
Total assets		306,000
Liabilities and shareholder's equity
Current liabilities:
Accounts payable                                   (2)	21,000
Interest payable                                      (3)	9,000
Loan payable                                          (4)	100,000
Total current liabilities		130,000
Long term liabilities
Shareholders' equity
Common stock                                        (5)	100,000
Retained earnings                                    (6)	76,000
Total shareholders' equity		176,000
Total liabilities and shareholders’ equity		306,000

Table (1)

Working notes:

1. 1. Compute cash balance as on December 31, 2018.

$\begin{array}{c}\text{Cash}\text{Balance = }\left(\text{Total Cash Receipts - Total Cash Disbursments}\right)\\ =\left(\begin{array}{l}\left(\$360,000+100,000+100,000\right)-\\ \left(\$300,000+15,000+30,000+5,000+3,000+40,000\right)\end{array}\right)\\ =\$560,000-\$393,000\\ =\$167,000\end{array}$

1. 2. Compute accounts payable for the year ended December 31, 2018.

$\begin{array}{c}\text{Accounts}\text{Payables = }\left(\text{Suppliers + Utility Company}\right)\\ =\$20,000+\$1,000\\ =\$21,000\end{array}$

1. 3. Compute interest payable

$\begin{array}{c}\text{Interest Payable = Loan Amount }\times \text{ Interest Rate }\times \text{ (Number of months }÷\text{ 12)}\\ \text{= \$100,000}\times \text{ 12\% }\times \frac{9}{12}\\ =\$9,000\end{array}$

1. 4. The bank loan repayable on 31 March 2019, which means loan repayable within the accounting year. Hence, bank loan is reported as current liability.
2. 5. 100,000 shares of no par common stock are authorized, of which 20,000 shares were issued and are outstanding. Thus, 20,000 shares are issued for $100,000.
3. 6. Net income for the year was $76,000.