Problem 5: Solution

Damitio Inn

Balance Sheet for year ended December 31, 20X3

Assets

Current Assets

Cash $ 10,000

Accounts Receivable 150,000

Allowance for Doubtful Accts. (10,000)

Food Inventory 50,000

Prepaid Insurance 12,000

Deferred Income Taxes 50,000

Total Current Assets $262,000

Investments 100,000

Property and Equipment

Land 300,000

Building 14,000,000

Equipment 800,000

Less: Accumulated depr.

Accumulated depr.—Building (2,500,000)

Accumulated depr.—Equipment (200,000)

Total Property and Equipment 12,400,000

Other Assets

Organization Costs 50,000

Total Other Assets 50,000

Total Assets $12,812,000

Liabilities

Current Liabilities

Accounts Payable 50,000

Wages Payable 20,000

Income Taxes Payable 30,000

Current Matur. of Long-Term Debt 80,000

Total Current Liabilities 180,000

Long-Term Debt

Net of current maturities 9,920,000

Other Long-Term Liabilities

Deferred Income Taxes 150,000

Total Liabilities $10,250,000

Owners’ Equity

Common Stock 500,000

Paid-in Capital in

Excess of Par 1,000,000

Retained Earnings 1,062,000

Total Owners’ Equity 2,562,000

Total Liabilities and Equity $12,812,000

Problem 6: Solution

Red Mountain Motel, Common-Size Balance Sheet

December 31, 20X1

ASSETS

Current Assets:

Cash $ 12,500 1.4%

Accounts Receivable 15,000 1.7%

Cleaning Supplies 2,500 0.3%

Total Current Assets 30,000 3.4%

Property and Equipment:

Land 120,000 13.7%

Building 800,000 91.4%

Furnishings and Equipment 50,000 5.7%

Less: Accumulated Depreciation (125,000) –14.3%

Net Property and Equipment 845,000 96.6%

Total Assets $ 875,000 100.0%

LIABILITIES AND OWNER’S EQUITY

Current Liabilities:

Notes Payable $ 23,700 2.7%

Accounts Payable 8,000 0.9%

Wages Payable 300 0.1%

Total Current Liabilities 32,000 3.7%

Long-Term Liabilities:

Mortgage Payable 420,000 48.0%

Total Liabilities 452,000 51.7%

Owners' Equity:

R. Mountain, Capital

at January 1, 20X1 384,500 43.9%

Net Income for 20X1 38,500 4.4%

R. Mountain, Capital

at December 31, 20X1 423,000 48.3%

Total Liabilities

and Owner’s Equity $ 875,000 100.0%

Problem 7: Solution

1. Accounts Receivable $100,000

Less: Allowance for Doubtful Accounts (3,000)

Beverage Inventory 15,000

Cash 15,000

Food Inventory 25,000

Prepaid Insurance 6,000

Notes Receivable 35,000

Short-Term Investments 50,000

Total Current Assets $243,000

Problem 7: Solution (continued)

2. Accounts Payable $ 30,000

Accrued Expenses 15,000

Advanced Deposits 12,000

Current Maturities—LTD 40,000

Income Taxes Payable 4,000

Notes Payable 25,000

Total Current Liabilities $126,000

3. Current Assets - Current Liabilities = Net Working Capital

$243,000 - $126,000 = $117,000

4. Current Assets ÷ Current Liabilities = Current Ratio

$243,000 ÷ $126,000 = 1.93 times

Problem 8: Solution

Capital accounts Direction of Amount of

affected impact impact

1. Common stock increase $ 100,000

Additional paid-in

Capital increase 1,900,000

Cash increase 2,000,000

2. Treasury stock increase 150,000

Cash decrease 150,000

3. Dividends payable increase 250,000

Retained earnings decrease 250,000

4. Dividends payable decrease 250,000

Cash decrease 250,000

5. Preferred stock increase 500,000

Cash increase 500,000

6. Dividends payable increase 12,500

Retained earnings decrease 12,500