rporation 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: CASE 2.2 Using Financial Statements C U LO4 through S LO6 CASE 2.3 Using a Balance Sheet C U LO4 MOON CORPORATION BALANCE SHEET JULY 31, 2011 Assets Liabilities & Owners’ Equity Cash . . . . . . . . . . . . . . . . $ 18,000 Liabilities: Accounts Receivable . . . 26,000 Notes Payable Land . . . . . . . . . . . . . . . . 37,200 (due in 60 days) . . . . . . . . . . . . . $ 12,400 Building. . . . . . . . . . . . . . 38,000 Accounts Payable . . . . . . . . . . . . . 9,600 Office Equipment . . . . . . 1,200 Total liabilities . . . . . . . . . . . . . . $ 22,000 Stockholders’ equity: Capital Stock . . . . . . . . . $60,000 Retained Earnings. . . . . 38,400 98,400 Total . . . . . . . . . . . . . . . . $120,400 Total . . . . . . . . . . . . . . . . . . . . . . . . . $120,400 STAR CORPORATION BALANCE SHEET JULY 31, 2011 Assets Liabilities & Owners’ Equity Cash . . . . . . . . . . . . . . . . $ 4,800 Liabilities: Accounts Receivable . . . 9,600 Notes Payable Land . . . . . . . . . .

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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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: CASE 2.2 Using Financial Statements C U LO4 through S LO6 CASE 2.3 Using a Balance Sheet C U LO4 MOON CORPORATION BALANCE SHEET JULY 31, 2011 Assets Liabilities & Owners’ Equity Cash . . . . . . . . . . . . . . . . $ 18,000 Liabilities: Accounts Receivable . . . 26,000 Notes Payable Land . . . . . . . . . . . . . . . . 37,200 (due in 60 days) . . . . . . . . . . . . . $ 12,400 Building. . . . . . . . . . . . . . 38,000 Accounts Payable . . . . . . . . . . . . . 9,600 Office Equipment . . . . . . 1,200 Total liabilities . . . . . . . . . . . . . . $ 22,000 Stockholders’ equity: Capital Stock . . . . . . . . . $60,000 Retained Earnings. . . . . 38,400 98,400 Total . . . . . . . . . . . . . . . . $120,400 Total . . . . . . . . . . . . . . . . . . . . . . . . . $120,400 STAR CORPORATION BALANCE SHEET JULY 31, 2011 Assets Liabilities & Owners’ Equity Cash . . . . . . . . . . . . . . . . $ 4,800 Liabilities: Accounts Receivable . . . 9,600 Notes Payable Land . . . . . . . . . . . . . . . . 96,000 (due in 60 days) . . . . . . . . . . . . . $ 22,400 Building. . . . . . . . . . . . . . 60,000 Accounts Payable . . . . . . . . . . . . . 43,200 Office Equipment . . . . . . 12,000 Total liabilities . . . . . . . . . . . . . . $ 65,600 Stockholders’ equity: Capital Stock . . . . . . . . . $72,000 Retained Earnings. . . . . 44,800 116,800 Total . . . . . . . . . . . . . . . . $182,400 Total . . . . . . . . . . . . . . . . . . . . . . . . . $182,400 Critical Thinking Cases 81 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.)

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