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Problem 1 Mumbo Jumbo Motel Corporation provided following information. Please prepare the Balance sheet and the Profit & Loss Statement in proper format from the information below: Sales $240,000 Cash $10,000 Account Payable $30,000 Cost of Goods Sold $ 192,000 Accounts Receivable $68,000 Interest Expenses $3,240 Accrued Expenses $6,000 Inventory $44,000 Gross Profit $48,000 Building $50,000 Notes Payable (short term) $14,000 Operating Expenses $39,000 Prepaid Expenses $4,000 Retained Earnings $63,000 Operating Profit $9,000 Net Income $4896 Long Term Debt $36,000 Taxes $864 Common Stock $25,000 Net Income before taxes $5760

Answer 1

MUMBO JUMBO MOTEL CORPORATION
Profit & loss statement
	Amount
Sales	$240000
(-) Cost of goods sold	$192000
Gross profit	$48000
(-) Operating expenses	$39000
Operating profit	$9000
(-) Interest expense	$3240
Net income before taxes	$5760
(-) taxes	$864
Net income	$4896

MUMBO JUMBO MOTEL CORPORATION
Balance sheet
		Amount
ASSETS
Non Current assets :		$50000
Building	$50000
Current assets :		$126000
Inventory	$44000
Prepaid expenses	$4000
Accounts receivable	$68000
Cash	$10000
Total Assets		$176000
EQUITY AND LIABILITIES
Equity :		$90000
Common stock	$25000
Retained earnings	$65000*
Liabilities :
Non current liabilities		$36000
Long term debt	$36000
Current liabilities		$50000
Accounts payable	$30000
Notes payable	$14000
Accrued expenses	$6000
Total liabilities		$86000
Total Equity and Liabilities		$176000

*Retained earnings = Total assets - Total liabilities - common stock

= $176000 - $86000 - $25000

= $65000

Note : The above balance sheet is prepared based on the assumption that the retained earnings of $63000 given in the question is in adjusted balance. So the adjusted balance of retained earnings is calculated by taking it as the balancing figure.

However, if the retained earnings is taken as $63000 then a new assumption has to be made i.e. $2000 of dividends has been paid. In that case, cash balance needs to be updated by reducing $2000. Then cash balance becomes $8000 ($10000 - $2000), so total assets balance will be $174000 ($176000 - $2000). Similarly, Total equity and liabilities balance will be $174000.

In that case the balance sheet would look like this:

MUMBO JUMBO MOTEL CORPORATION
Balance sheet
		Amount
ASSETS
Non Current assets :		$50000
Building	$50000
Current assets :		$126000
Inventory	$44000
Prepaid expenses	$4000
Accounts receivable	$68000
Cash	$8000
Total Assets		$174000
EQUITY AND LIABILITIES
Equity :		$88000
Common stock	$25000
Retained earnings	$63000
Liabilities :
Non current liabilities		$36000
Long term debt	$36000
Current liabilities		$50000
Accounts payable	$30000
Notes payable	$14000
Accrued expenses	$6000
Total liabilities		$86000
Total Equity and Liabilities		$174000