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an Lee, a college student with several summers' experience as a guide on canoe camping trips, decided to go into business for hen une 1, Lee organized Birchbark Canoe Trails by depositing $1,600 of personal savings in a bank account in the name of the busi on June 1, the business borrowed an additional $3,200 cash from John Lee (Susan's father) by issuing a three-year note payable. the business get started, John Lee agreed that no interest would be charged on the loan. The following transactions were also ar by the business on June 1: 1. Bought a number of canoes at a total cost $6,200; paid $2,000 cash and agreed to pay the balance within 60 days. 2. Bought camping equipment at a cost of $3,400 payable in 60 days. 3. Bought supplies for cash. $700

an Lee, a college student with several summers' experience as a guide on canoe camping trips, decided to go into business for hen une 1, Lee organized Birchbark Canoe Trails by depositing $1,600 of personal savings in a bank account in the name of the busi on June 1, the business borrowed an additional $3,200 cash from John Lee (Susan's father) by issuing a three-year note payable. the business get started, John Lee agreed that no interest would be charged on the loan. The following transactions were also ar by the business on June 1: 1. Bought a number of canoes at a total cost $6,200; paid $2,000 cash and agreed to pay the balance within 60 days. 2. Bought camping equipment at a cost of $3,400 payable in 60 days. 3. Bought supplies for cash. $700

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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Susan Lee, a college student with several summers' experience as a guide on canoe camping trips, decided to go into business for herself. On June 1, Lee organized Birchbark Canoe Trails by depositing $1,600 of personal savings in a bank account in the name of the business. Also on June 1, the business borrowed an additional $3,200 cash from John Lee (Susan's father) by issuing a three-year note payable. To help the business get started, John Lee agreed that no interest would be charged on the loan, The following transactions were also carried out by the business on June 1: 1. Bought a number of canoes at a total cost $6,200,; paid $2,000 cash and agreed to pay the balance within 60 days. 2. Bought camping equipment at a cost of $3,400 payable in 60 days. 3. Bought supplies for cash, $700. After the close of the season on September 10, Lee asked another student, David Ray, who had taken a course in accounting, to help determine the financial position of the business. The only record Lee had maintained was a checkbook with memorandum notes written on the check stubs. From this source Ray discovered that Lee had invested an additional $1,200 of savings in the business on July 1, and also that the accounts payable arising from the purchase of the canoes and camping equipment had been paid in full. A bank statement received from the bank on September 10 showed a balance on deposit of $2,790. Lee informed Ray that all cash received by the business had been deposited in the bank and all bills had been paid by check immediately upon receipt; consequently, as of September 10 all bills for the season had been paid. However, nothing had been paid on the note payable. The canoes and camping equipment were all in excellent condition at the end of the season and Lee planned to resume operation the following summer. In fact, she had already accepted reservations from many customers who wished to return. Ray felt that some consideration should be given to the wear and tear on the canoes and equipment, but he agreed with Lee that for the present purpose the canoes and equipment should be listed in the balance sheet at the original cost. The supplies remaining on hand had cost $50, and Lee felt that these supplies could be used next summer. Ray suggested that two Balance Sheets be prepared, one to show the condition of the business on June 1 and the other showing the condition on September 10. He also recommended to Lee that a complete set of accounting records be established. Use the information in the first paragraph, including the three numbered transactions (the portion above the dotted a. Instructions: line), as a basis for preparing a Balance Sheet dated June 1. b. Prepare a Balance Sheet at September 10. (Because of the incomplete information available, it is not possible to determine the amount of cash at September 10 by adding cash receipts and deducting cash payments throughout the season. The amount on deposit as reported by the bank at September 10 is to be regarded as the total cash belonging to the business at that date.) By comparing the two Balance Sheets, compute the change in Owner's Equity. Explain the sources of this change in Owner's Equity and state whether you consider the business to be successful. Also comment on the cash position at the beginning and end of the season. Has the cash position improved significantly? Explain. C.
Transcribed Image Text:Susan Lee, a college student with several summers' experience as a guide on canoe camping trips, decided to go into business for herself. On June 1, Lee organized Birchbark Canoe Trails by depositing $1,600 of personal savings in a bank account in the name of the business. Also on June 1, the business borrowed an additional $3,200 cash from John Lee (Susan's father) by issuing a three-year note payable. To help the business get started, John Lee agreed that no interest would be charged on the loan, The following transactions were also carried out by the business on June 1: 1. Bought a number of canoes at a total cost $6,200,; paid $2,000 cash and agreed to pay the balance within 60 days. 2. Bought camping equipment at a cost of $3,400 payable in 60 days. 3. Bought supplies for cash, $700. After the close of the season on September 10, Lee asked another student, David Ray, who had taken a course in accounting, to help determine the financial position of the business. The only record Lee had maintained was a checkbook with memorandum notes written on the check stubs. From this source Ray discovered that Lee had invested an additional $1,200 of savings in the business on July 1, and also that the accounts payable arising from the purchase of the canoes and camping equipment had been paid in full. A bank statement received from the bank on September 10 showed a balance on deposit of $2,790. Lee informed Ray that all cash received by the business had been deposited in the bank and all bills had been paid by check immediately upon receipt; consequently, as of September 10 all bills for the season had been paid. However, nothing had been paid on the note payable. The canoes and camping equipment were all in excellent condition at the end of the season and Lee planned to resume operation the following summer. In fact, she had already accepted reservations from many customers who wished to return. Ray felt that some consideration should be given to the wear and tear on the canoes and equipment, but he agreed with Lee that for the present purpose the canoes and equipment should be listed in the balance sheet at the original cost. The supplies remaining on hand had cost $50, and Lee felt that these supplies could be used next summer. Ray suggested that two Balance Sheets be prepared, one to show the condition of the business on June 1 and the other showing the condition on September 10. He also recommended to Lee that a complete set of accounting records be established. Use the information in the first paragraph, including the three numbered transactions (the portion above the dotted a. Instructions: line), as a basis for preparing a Balance Sheet dated June 1. b. Prepare a Balance Sheet at September 10. (Because of the incomplete information available, it is not possible to determine the amount of cash at September 10 by adding cash receipts and deducting cash payments throughout the season. The amount on deposit as reported by the bank at September 10 is to be regarded as the total cash belonging to the business at that date.) By comparing the two Balance Sheets, compute the change in Owner's Equity. Explain the sources of this change in Owner's Equity and state whether you consider the business to be successful. Also comment on the cash position at the beginning and end of the season. Has the cash position improved significantly? Explain. C.
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