Reference no: EM132662826

Problem - Melody Lane Music Company was started by John Ross early in 2016. Initial capital was acquired by issuing shares of common stock to various investors and by obtaining a bank loan. The company operates a retail store that sells records, tapes, and compact discs. Business was so good during the first year of operations that John is considering opening a second store on the other side of town. The funds necessary for expansion will come from a new bank loan. In order to approve the loan, the bank requires financial statements.

John asks for your help in preparing the balance sheet and presents you with the following information for the year ending December 31, 2016:

a. Cash receipts consisted of the following:

From customers $398,520

From issue of common stock 120,000

From bank loan 108,000

b. Cash disbursements were as follows:

Purchase of inventory $304,000

Rent 30,000

Salaries 34,000

Utilities 9,000

Insurance 7,000

Purchase of equipment and furniture 44,000

c. The bank loan was made on March 31, 2016. A note was signed requiring payment of interest and principal on March 31, 2017. The interest rate is 12%.

d. The equipment and furniture were purchased on January 3, 2016, and have an estimated useful life of 5 years with no anticipated salvage value. Depreciation per year is $8,800.

e. Inventories on hand at the end of the year cost $104,000.

f. Amounts owed at December 31, 2016, were as follows:

To suppliers of inventory $24,000

To the utility company 2,000

g. Rent on the store building is $2,000 per month. On December 1, 2016, four months' rent was paid in advance.

h. Net income for the year was $80,000. Assume that the company is not subject to federal, state, or local income tax.

i. Three hundred thousand shares of no par common stock are authorized, of which 24,000 shares were issued and are outstanding.

Required - Prepare a balance sheet at December 31, 2016.