Question

Christine and Nick Par, local golf pros, opened the Hole-in-One Driving Range Company on March 1, 2018. They invested $35,000 in cash and received common stock in the Company in exchange for their investment. They also borrowed $20,000 from a local bank on March 1st, which is due and payable on December 31, 2020. Interest on the loan accrues at a rate of 6% and is payable on the 30^th of each month. A small range building was constructed for a cost of $18,500, and the contractor was paid in full in March. The building is estimated to last for ten years, with no salvage value at the end of its useful life. Additionally, $3,800 was spent on an initial supply of golf balls and golf clubs (which are expected to last for two years with no salvage value). The Pars also signed a one year-lease (with two one-year renewal options) for five acres of land at a cost of $1,000 per month, and paid the March rent on March 15^th. During the first month, advertising costs in the totaled $750, of which $150 was unpaid as of March 31^st. During March, the Company paid $400 to members of the local high school golf team for retrieving golf balls from the range. At the beginning of the month, the Company paid their first six months of insurance coverage to the Eagle Insurance Co. in the amount of $6,000.

All revenues from customers during the month were deposited into the Company’s bank account. The Company had $15,300 in cash sales during March, and $4,225 in credit card sales. The bank charges a 2% processing fee for all credit card transactions.

On March 31^st, the Pars paid themselves a dividend from the Company of $900. Additionally, a $250 utility bill for March was received on March 31^st but not paid until April.

The Pars believe that the business did well in its first month of operations. However, they need some assistance in preparing financial statements for the month of March.

Requirements:

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1. Prepare a balance sheet for the business as of March 31^st.
2. Prepare a statement of cash flows for the business for the month of March.

Answer 1

Balance Sheet
Assets	Amount
Current Assets
Cash	35,000.00
Bank	9,140.50
Stock	1,900.00
Prepaid Insurance	5,000.00
Long Term Assets
Building	16,650.00
Other Assets
TOTAL ASSETS	67,690.50
Liabilities & Owner's Equity
Current Liabilities
Interest accrued on loan	100.00
Advertising Payable	150.00
Utility Payable	250.00
Long term Liabilities
Loan	20,000.00
Owner's Equity
Share Capital	35,000.00
Net Profit	11,290.50
Dividend declared (assuming dividends are not paid in cash)	900.00
TOTAL LIABILITIES	67,690.50
Income Statement
Sales	19,525.00
Expenses
Interest accrued (20000*6%*1/12)	(100.00)
Depreciation
Building (18500/10)	(1,850.00)
Stock (3800/2)	(1,900.00)
Rent	(1,000.00)
Advertising (750 for march & 150 payable)	(750.00)
Salary	(400.00)
Insurance (insurance of one month booked & remaining prepaid)	(1,000.00)
Bank Charges (2%*4225)	(84.50)
Utility Bill	(250.00)
Profits before dividend	12,190.50
Dividend Paid	(900.00)
Profit after dividend	11,290.50
Cash Flows (assuming all the transactions has been done through Bank)
Cash (in the beginning of the month)	35,000.00
Bank (in the beginning of the month)	20,000.00
Operating activities
Sales	19,525.00
Rent	(1,000.00)
Advertising	(600.00)
Salary	(400.00)
Insurance	(6,000.00)
Investing Activities
Building	(18,500.00)
Stock	(3,800.00)
Financial Activities
Bank Charges	(84.50)
Cash (as per books)	35,000.00
Bank (as per books)	9,140.50