Question

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 balance sheet and presents you with the following information for the year ending December 31, 2018: Cash receipts consisted of the following: From customers $ 431,750 From issue of common stock 145,000 From bank loan 118,000 Cash disbursements were as follows: Purchase of inventory $ 309,000 Rent 45,000 Salaries 39,000 Utilities 14,000 Insurance 12,000 Purchase of equipment and furniture 49,000 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 10%. The equipment and furniture were purchased on January 3, 2018, and have an estimated useful life of 10 years with no anticipated salvage value. Depreciation per year is $4,900. Inventories on hand at the end of the year cost $109,000. Amounts owed at December 31, 2018, were as follows: To suppliers of inventory $ 29,000 To the utility company 3,000 Rent on the store building is $3,000 per month. On December 1, 2018, four months' rent was paid in advance. Net income for the year was $85,000. Assume that the company is not subject to federal, state, or local income tax. Two hundred thousand shares of no par common stock are authorized, of which 29,000 shares were issued and are outstanding. Required: Prepare a balance sheet at December 31, 2018. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

		Melody Lane Music Company
		Balance Sheet
		As on 31st Dec 2018
		Current Assets
		Cash		$226,750
		Inventory		$109,000
		Prepaid Rent		$9,000
		Total Current Assets				$344,750
		Equipment and Furniture		$49,000
		Less : Accumulated Depreciation		$4,900
		Fixed Assets, Net				$44,100
		Total Assets				388850
		Liabilities and Equities
		Accounts Payable				$29,000
		Utilities Payable				$3,000
		Note Payable, due Mar 2019				$118,000
		Interest Payable				$8,850
		Total Current Liabilities				$158,850
		Common Stock				$145,000
		(200200 shares authorised, 29000 shares issued at no par)
		Retained Earnings				$85,000
		Stockholders Equity				$230,000
		Total Liabilities and shareholders Equity				$388,850	$0
		Cash Balance at year end
		Cash receipts
		From Customers			$431,750
		From Issue of Common Stock			$145,000
		Bank Loan			$118,000
		Total Receipts			$694,750
		Less : Cash Disbursements
		Purchase of Inventory			$309,000
		Rent			$45,000
		Salaries			$39,000
		Utilities			$14,000
		Insurance			$12,000
		Equipment and Furniture			$49,000
		Total Disbursements			$468,000
		Cash Balance			$226,750
		Prepaid Rent		(3000*3)	$9,000
		Interest Payable (118000*10%*9/12)			$8,850