Using a Balance Sheet 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.)
Using a Balance
Sheet
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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