Preparing Financial Statements; Effects of Business Transactions
The balance sheet items of The Sweet Soda Shop (arranged in alphabetical order) were as follows at the close of the business on September 30, 2005:
| Accounts Payable | 8,500 | Furniture and Fixtures | 20,000 |
| Accounts Receivable | 1,250 | Land | 55,000 |
| Building | 45,500 | Notes Payable | ? |
| Capital Stock | 50,000 | Retained Earnings | 4,090 |
| Cash | 7,400 | Supplies | 3,440 |
The transactions occurring during the first week of October were:
Oct. 3 Additional capital stock was sold for Rs. 30,000. The accounts payable were paid in full. (No payment was made on the notes payable.)
Oct. 6 More furniture was purchased on account at a cost of Rs. 18,000, to be paid within 30 days. Supplies were purchased for Rs. 1,000 cash from a restaurant supply center that was going out of business. These supplies would have cost Rs. 1,875 if purchased under normal circumstances.
Oct. 1 6 Revenues of Rs. 5,500 were earned and paid in cash. Expenses required to earn the revenues of Rs. 4,000 were incurred and paid in cash.
Instructions
- Prepare a balance sheet at September 30, 2005. (You will need to compute the missing figure for Notes Payable.)
- Prepare a balance sheet at October 6, 2005. Also prepare an income statement and a statement of cash flows for the period October 1 6, 2005. In your statement of cash flows, treat the purchase of supplies and the payment of accounts payable as operating activities.
- Assume the note payable does not come due for several years. Is The Soda Shop in a stronger financial position on September 30 or on October 6? Explain briefly.