Answered: Statement and Balance Sheet. (Remember…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Mr. opened an upscale restaurant in London, next to LBS. Business. has been good, and Tersun is considering expanding the restaurant. Tersun, who knows little accounting, produced the following financial statements for his restaurant on December 31, 2021, the end of the first month of operations: Tersun Income Statement, Month ended 31 December 2021 Sales revenue Share capital Total revenues Accounts payable Advertising expense Rent expense Total expenses Net income (£) 42,000 10,000 52,000 8,000 5,000 6.000 19.000 33,000 Tersun Balance Sheet. 31 December 2021 Assets Cash Cost of sales Food inventory Furniture Total Assets Liabilities (f) 12,000 22,000 5,000 10.000 49,000 0 Shareholders' Equity 49.000 Tersun has asked whether he should expand the restaurant. His banker says he may be wise to expand if (a) net income for the first month reached £10,000 and (b) total assets are at least £35,000. It appears that the business has reached these milestones, but Tersun doubts whether his financial statements tell the true story. He needs your help for this decision. Prepare a corrected Income Statement and Balance Sheet. (Remember that Retained Earnings, which was omitted from the Balance Sheet, should equal net income for the very first month; i.e., there were no dividends.) After preparing the corrected financial statements, give your recommendation as to whether the restaurant should be expanded

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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