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all the capital stock of one or both of the companies. For which business would you be willing to pay the higher price? Do you see any indication of a financial crisis that you might face shortly after buying either company? Explain your answer fully. (For either decision, additional information would be useful, but you are to reach your decision on the basis of the information available.

all the capital stock of one or both of the companies. For which business would you be willing to pay the higher price? Do you see any indication of a financial crisis that you might face shortly after buying either company? Explain your answer fully. (For either decision, additional information would be useful, but you are to reach your decision on the basis of the information available.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Read the instructions below and see the attached balance sheet of moon and star cooperation to support your answer. Moon Corporation and Star Corporation are in the same line of business and both were recently organized, so it may be assumed that the recorded costs for assets are close to current market values. The balance sheets for the two companies are as follows at July 31, 2011: Instructions

a. Assume that you are a banker and that each company has applied to you for a 90-day loan of $12,000. Which would you consider to be the more favorable prospect? Explain your answer fully. 

b. Assume that you are an investor considering purchasing all the capital stock of one or both of the companies. For which business would you be willing to pay the higher price? Do you see any indication of a financial crisis that you might face shortly after buying either company? Explain your answer fully. (For either decision, additional information would be useful, but you are to reach your decision on the basis of the information available.

MOON CORPORATION BALANCE SHEET JULY 31, 2011 Assets Liabilities & Owners' Equity Cash.. $ 18,000 Liabilitios: Accounts Receivable 26,000 Notos Payable Land... 37,200 (due in 60 days).. $ 12,400 Accounts Payable. Building... Office Equipment 38,000 9,600 1,200 Total liabilites $ 22,000 Stockholders' equity: Capital Stock.... Rotained Earnings.. $60,000 38,400 98,400 Total.. $120,400 Total .. $120,400 STAR CORPORATION BALANCE SHEET JULY 31, 2011 Llabilities & Owners' Equity Assets Cash.. $ 4,800 Liabilitios: Notes Payable (due in 60 days).. Accounts Receivable 9,600 Land... 96,000 $ 22,400 Accounts Payable. Total labiliies. Building.. 60,000 43,200 Office Equipment. 12,000 $ 65,600 Stockholders' equity: Capital Stock.. Retained Eamings..... $72,000 44,800 116,800 Total $182,400 Total $182,400
Transcribed Image Text:MOON CORPORATION BALANCE SHEET JULY 31, 2011 Assets Liabilities & Owners' Equity Cash.. $ 18,000 Liabilitios: Accounts Receivable 26,000 Notos Payable Land... 37,200 (due in 60 days).. $ 12,400 Accounts Payable. Building... Office Equipment 38,000 9,600 1,200 Total liabilites $ 22,000 Stockholders' equity: Capital Stock.... Rotained Earnings.. $60,000 38,400 98,400 Total.. $120,400 Total .. $120,400 STAR CORPORATION BALANCE SHEET JULY 31, 2011 Llabilities & Owners' Equity Assets Cash.. $ 4,800 Liabilitios: Notes Payable (due in 60 days).. Accounts Receivable 9,600 Land... 96,000 $ 22,400 Accounts Payable. Total labiliies. Building.. 60,000 43,200 Office Equipment. 12,000 $ 65,600 Stockholders' equity: Capital Stock.. Retained Eamings..... $72,000 44,800 116,800 Total $182,400 Total $182,400
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