He is liable for a pay-roll of $150, earned but not yet due.
Draw up a statement showing assets, liabilities, and net worth, using standard titles.
3. Dawes has reached a point where it is not only profitable but really necessary to expand his business if he is to retain the good-will of his old customers and secure new ones. He has therefore persuaded Edward A. Robbins, a capitalist, to put cash into the business equal to Dawes’ net interest and so become a partner with him.
The partnership uses $3,100 of this new capital to purchase additional raw material, and $2,500 for some partly finished stock (bought at a sacrifice sale). They spend $1,600 for new machinery, $250 for tools, and $100 for new patterns. With an eye toward future building facilities they acquire another and adjoining strip of property with a building on it. The latter costs them $5,470 and the land $2,500.
To facilitate securing and delivering goods, the partners invest $1,800 in a small truck. They add shop furniture amounting to $80.
These various deals were consummated by the early afternoon of January 2, 19—. The partners ask you for a new balance sheet to show the condition of the business and the respective interests of each.
4. At the end of the year’s operation, Dawes & Robbins ask you to draw up a statement of assets, liabilities, and net worth, the following figures being submitted:
- Balance of cash in the bank $28,000.
- Accounts owing the partnership $12,000; notes $6,000.
- The inventory is again split up into:
- Raw materials $9,000.
- Partly finished goods $5,000.
- Finished stock $500.
- Still on hand unused:
- Advertising material $640.
- Oil, waste, and supplies $500.
- Packing supplies $750.
- Other assets:
- Models and patterns $500.
- Loose tools $75.
- Shop furniture is to be shown at the last balance sheet figure
- less an estimated depreciation in value of $161.
- Machinery in the same manner less depreciation of $2,669.
- Delivery equipment less depreciation of $360.
- Factory less depreciation of $3,498.
- Land as it was on the last balance sheet.
- Liabilities are as follows:
- Accounts owing to creditors $1,000.
- Notes $250.
- Accrued pay-roll $200.
- The mortgage had been reduced to $2,000.
5. Robbins is anxious to withdraw from active participation in the partnership. To facilitate this and to secure additional funds with which to buy new models and other things needed for the growing business, it had been decided some time ago to incorporate and to dispose of some of the stock to outsiders. The necessary steps had already been taken. In accordance therewith the corporation takes over the business at the values shown in the balance sheet of [Problem 4], with the exception of $14,252 cash which Robbins retains. For the good-will of the business the corporation gives the partners $15,000 of its capital stock. $25,000 of the capital stock is sold to outsiders for $25,000 cash. The rest of the capital stock is used in purchasing the partnership.
Set up the balance sheet of the corporation.