On June 20, 2004, she transferred all of her savings, $30,000, to a new bank account with the company name, and two days later she added $20,000 borrowed from her father to the account. After that things moved quickly as she rented a second floor office for $3,000 a month, paying one month's rent in advance as a security deposit to apply to the end of the lease, and $3,000 for July 2004. She purchased some used computer equipment with software from her last employer, and ordered stationary and office supplies that cost $5,000 when they were delivered on June 29.
Cakes factory opened for business on July 2, 2004. Although Maria was not an accountant, she took stock of her company's financial position as she began to seek her first contracts. The company had spent all but $12,000 of the cash that had been put into the bank account, but it had some assets as well.
Assets
Cash in bank - $12000
Office supplies - $5000
Equipment and software - $27000
Prepaid rent - $6000
Liabilities and Owner's Equity
Loan - $20,000
Maria's equity - $30,000
She found the following information she had accumulated during the two months of operations:
-
Clients had paid $40,000 for completed work, and two clients still owed a total of $7,000 for work that had been completed and delivered to them. There were no projects underway as the office closed on August 31 for the Labor Day weekend.
-
Additional office supplies had been purchased for cash of $900, and office supplies and stationery that had cost $4,200 were still on hand.
-
Rent of $6,000 for August and September was paid in cash. Utility bills, a repair of equipment, and the salaries paid to designers (including Maria Hernandez) were paid in cash totaling $33,000.
-
Additional equipment and software was purchased on August 27 for $11, 000, with half of that amount being paid in cash and the remainder due one month later.
As she thought about the first two month's operations, she was perplexed by the fact that cash in the bank had decreased by $5,400 even though she was sure the business was operating profitably.
She also wondered how to account for the following:
Please prepare a income statement, a balance sheet, and a cash flow statement for the case including the info below (cheggs glitching and wont let me put this below the following info)
-
She had agreed to pay her father interest on his loan of 6% per year, but no interest had been paid so far.
-
The equipment and software were working out well, but Hernandez knew that they had a technological life of no more than three years from the time that she had purchased them.