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

  1. Prepare a balance sheet at September 30, 2005. (You will need to compute the missing figure for Notes Payable.)
  2. 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.
  3. 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.