Reference no: EM131075771

Each autumn, as a hobby, Suzanne De Angelo weaves cotton placemats to sell at a local crafts shop. The mats sell for $20 per set of four. The shop charges a 10% commission and remits the net proceeds to De Angelo at the end of December. De Angelo has woven and sold 25 sets each of the last two years. She has enough cotton in inventory to make another 25 sets. She paid $7 per set for the cotton. De Angelo uses a four-harness loom that she purchased for cash exactly two years ago. It is depreciated at the rate of $10 per month. The accounts payable relate to the cotton inventory and are payable by September 30. De Angelo is considering buying an eight-harness loom so that she can weave more intricate patterns in linen. The new loom costs $1,000; it would be depreciated at $20 per month. Her bank has agreed to lend her $1,000 at 18% interest, with $200 principal plus accrued interest payable each December 31. De Angelo believes she can weave 15 linen placemat sets in time for the Christmas rush if she does not weave any cotton mats. She predicts that each linen set will sell for $50. Linen costs $18 per set. De Angelo’s supplier will sell her linen on credit, payable December 31. De Angelo plans to keep her old loom whether or not she buys the new loom. The balance sheet for her weaving business at August 31 is as follows: SUZANNE DE ANGELO, WEAVER Balance Sheet August 31 Current assets: Current liabilities: Cash $ 25 Accounts payable $ 74 Inventory of cotton 175 200 Fixed assets: Loom 500 Owner’s equity 386 Accumulated depreciation (240) 260 Total assets $ 460 Total liabilities and owner’s equity $460