Preparing Financial Statements and Making Decisions The Desert Harbor Inn has been in business for more than 100 years but was recently renovated.
On January 1, 2004, the balance sheet of the company was as shown on the next page.
During 2004, the inn earned $165,000 from room rentals and another $35,000 from parking, the gift shop, and other guest services. Of this amount, $187,000 was received in cash by year end; $13,000 was still collectible from credit card companies and one very reliable corporate account. Expenses incurred during the year included staff wages, $49,000; utilities, $10,400; supplies used, $4,300; depreciation on furniture and fixtures, $1,500; depreciation on the building, $3,500; interest on note payable, $4,700; cost of goods sold by gift shop, $11,000; and other miscellaneous expenses of $3,300. Except for depreciation, supplies consumed, and $890 of wages still owed to employees, all expenses were paid for in cash. Other cash payments included $800 for purchase of supplies and $35,000 paid on the principal of the note payable. Owners withdrew $45,000 from the business for living expenses during the year.
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Desert Harbor Inn |
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Assets |
Liabilities and Owners’ Equity |
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Cash |
$4,900 |
Notes payable |
$56,500 |
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Supplies on hand |
8,800 |
Investment by owners |
60,000 |
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Furniture and equipment |
25,000 |
Retained earnings |
19,200 |
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Buildings |
95,000 |
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Accumulated depreciation |
10,000 |
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Land |
12,000 |
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Total |
$135,700 |
Total |
$135,700 |
Required
A. Prepare year end financial statements for the company for 2004. Include an income statement, statement of cash flows, and a balance sheet.
B. From a financial perspective, does this company appear to be one that you would like to own? Why or why not?