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Problems On Balance Sheet

The document describes several transactions involving Mr. A's business and the Broadway Corporation. It then provides Nike's balance sheet and transactions during June 2010, and Papa John's balance sheet and transactions during the year. Finally, it lists transactions for Pizzanut Enterprises from April to May 2010. The assistant is asked to summarize the effect of each set of transactions and prepare the ending balance sheets.

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Nishant Dehury
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190 views4 pages

Problems On Balance Sheet

The document describes several transactions involving Mr. A's business and the Broadway Corporation. It then provides Nike's balance sheet and transactions during June 2010, and Papa John's balance sheet and transactions during the year. Finally, it lists transactions for Pizzanut Enterprises from April to May 2010. The assistant is asked to summarize the effect of each set of transactions and prepare the ending balance sheets.

Uploaded by

Nishant Dehury
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Transaction Analysis and Preparation of Balance Sheet

1. Analyze the effect of following transactions on the accounting equation and prepare the Balance
Sheet
a. Mr. A started business with capital of 10,00,000
b. He raised loan of 5,00,000 from Bank
c. Purchased Plant and Machinery for 2,00,000 in cash
d. Purchased goods worth 20,000 in cash
e. Purchased goods worth 30,000 on credit
f. Inventory costing 15,000 is sold for 20,000 in cash
g. Inventory costing 10,000 is sold for 12,000 on credit
h. Paid 20,000 to the supplier
i. Building rent paid for 4000
j. Received 7000 from customer
k. The owner withdraws 5000 cash for his personal use.
l. The owner withdraws goods worth 5000 for his personal use.

2. Broadway Corporation’s balance sheet at November 29, 2010 contained only the following items
(arranged here in random order):

Particulars Amount Particulars Amount


Paid-in capital……………………..19000 Machinery and equipment…………..20000
Bills payable………………..……..20000 Furniture & Fixtures……………….....8000
Cash……………………………….22000 Bills Receivable…………………........8000
Debtors……………………………10000 Creditors………………………….....16000
Merchandise inventory……………29000 Building………………………..…2,30,000
Land………………………………41000 Long term debt………….………..1,42,000

On the following day, November 30, these transactions and events occurred:

1. Purchased machinery and equipment for 14000, paying 3000 in cash and signing a 90-day bill for
the balance.
2. Paid 6000 to creditors.
3. Sold on account some land that was not needed for 6000, which was the Broadway Corporation’s
acquisition cost of land.
4. The remaining land was valued at 2,40,000 by professional appraisers.
5. Issued capital stock as payment for 23,000 of the long-term debt, that is, debt due beyond one
year.

Analyze the effect of each transaction on the accounting equation and prepare balance sheet as on
November 30, 2010, showing supporting computations all new amounts.

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3. Nike. Inc. has the following balance sheet on May 31, 2010 (in millions $):

Assets Amount Liabilities & Owners’ Equity Amount


Cash 254 Total outside liabilities 2721
Debtors 1567 Owners’ Equity 3136
Inventories 1446
Equipment & other assets 2590
Total Assets 5857 Total liab & owners’ equity 5857
Consider the following transactions that occurred during the first 3 days of June ($ in thousands):

1. Inventories were acquired for cash, 16.


2. Inventories were acquired on open account, 19.
3. Unsatisfactory shoes acquired on open account in March were returned for full credit, 4.
4. Equipment of 12 was acquired for a cash down payment of 3 plus 2-year promissory note of 9.
5. To encourage wider displays, special store equipment was sold on account to New York area
stores for 40. The equipment had cost 40 in the preceding month.
6. Jodie Foster produced, directed, starred in a movie. As a favor to a Nike executive, she agreed to
display Nike shoes in a basketball scene. No fee was paid by Nike.
7. Cash was disbursed on account (to reduce creditors), 17.
8. Collected cash on account, 18.
9. Sold additional common stock for cash to new investors, 90.
10. The president of the company sold 5000 shares of his personal holdings of Nike stock through his
stockholder.

Required:

1. Prepare an analysis showing the effects of the June transactions on the financial position of Nike.
2. Prepare a balance sheet as of June 3.

4. The balance sheet of Papa John’s (an American restaurant franchise company) on 31st December,
2006 is as follows:

Particulars Amount (In $)

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Assets
Current Assets
Cash 13000
Accounts Receivable 23000
Supplies 27000
Prepaid Expenses 8000
Other current assets 14000
Total Current Assets 85000
Investments 1000
Property and equipment (net of accumulated depreciation of $1,89,000) 198000
Notes receivable 12000
Intangibles 67000
Other assets 17000
Total Assets 380000

Liabilities and Stockholder’s Equity


Current Liabilities
Accounts Payable 29000
Accrued expenses payable 73000
Total Current Liabilities 102000
Unearned franchise fees 7000
Notes Payable 96000
Other Long-Term liabilities 27000
Stockholders’ Equity
Contributed Capital 64000
Retained Earnings 84000
Total stockholders’ equity 148000
Total liabilities and stockholders’ equity 380000

Following transactions happened during the year


1. Papa John’s issues $2000 of additional common stock, receiving cash from investors.
2. Papa John’s borrows $6000 from its local bank, signing note to be paid in three years.
3. Papa John’s purchases $10000 of new ovens, counters, refrigerators, and other equipment, paying
$2000 in cash and signing a two-year note payable to the equipment manufacturer for the rest.
4. Papa John’s lends $3000 cash to new franchisees who sign notes agreeing to repay the loans in
five years.
5. Papa John’s purchases the stock of other companies as a long-term investment, paying $1000 in
cash.
6. Papa John’s board of directors declares that the Company will pay $3000 in cash dividends to
shareholders next month.

Prepare Closing Balance Sheet of Papa John’s as on 31st December, 2007

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5. Following are the transactions of Pizzanut Enterprises:
1. Sandy incorporated an entity named “Pizzanut Enterprises” on Ist April 2010.
2. Opened a Bank account for Pizzanut Enterprises and deposited 1,00,000 towards his capital
contribution.
3. Borrowed 75000 from local bank @12% interest (payable monthly). Principal can be repaid at
any time.
4. Signed up a lease agreement for 24 months. Initial deposit of 40,000 made. Rent (15000) is
payable at the beginning of the month.
5. Buys an oven for 35,000. Full payment made.
6. Buys other paraphernalia needed for 12000.
7. Buys ingredients needed for making pizza for 8000.
8. Buys Office equipments for 45000. Payments to be made by the end of May 2008.
9. Hired a delivery boy. Salary of 5500 to be paid at the end of every month.
10. Sandy is going to make pizzas. Given his qualifications, he decided to give himself a salary of
35000 per month. However to avoid the drain in the initial period he decided to take the salary
only the business starts flowing.
11. Buys a second hand delivery van for 40,000. It is expected to run for 3 years or 90,000 kms.
12. First catering order for 12000. Uses up the 2500 worth of ingredients for making.
13. IBS approaches Sandy for exclusive catering whereby IBS would pay 20000 upfront to cater 4
times a year during various college events.
14. Buys supplies worth 40000 in credit. Amount to be paid by the end of May.
15. April ends and all payments due are honored including utility bills of 6000, except Sandy’ salary.
16. During May cash sales are registered in the shop for 135000. Materials used up amounts to
23500.
17. During last week of May IBS’s catering event happened smoothly. Materials used amounts to
1800.
18. May ends. All payments due are honored. Sandy takes salary for April Utilities amount to 15000.

Show the impact of all the transactions on the accounting equation and prepare a Balance Sheet as at
the end of April and May 2010

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