Assignment: Constructing and Analyzing Sellit Inc.

Balance Sheet
E2-7:
a-

Dec 31, 2004 Debit Credit

Cash 20,000
Common Stock 20,000

Dec 31, 2004 Debit Credit

Cash 40,000
Bank Loan 40,000

Dec 31, 2004 Debit Credit

Land 5,000
cash 5,000

Dec 31, 2004 Debit Credit

Manpower 0
Account payable 0

Dec 31, 2004 Debit Credit

Rent 3,000
Cash 3,000

Assets:

Cash Account Result Debit Credit

20,000 5,000
40,000 3,000
Sum 60,000 8,000
Balance Net: 52,000 Debit

Rent Account Result Debit Credit

3,000 0
Sum 3,000 0
Balance Net: 3,000 Debit

Land Account Result Debit Credit

5,000 0
Sum 5,000 0
Balance Net: $5,000 Debit
Therefore, Total Assets: 52,000 + 3,000 + 2,000 = $60,000
Liabilities:

Bank Loan Account Result Debit Credit

0 40,000
Sum 0 40,000
Balance Net: $40,000 Credit
Therefore, Total Liabilities: $40,000
Equity:

Common Stocks Account Result Debit Credit

0 20,000
Sum 0 20,000
Balance Net: $20,000 Credit
Therefore, Total Equity: 40,000$
Balance Sheet:
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Sellit Inc.
Statement of Financial Position as of December 31, 2004

Assets: Liabilities

Current Assets : Long Term Liabilities

Cash: $52,0000 Bank Loan: $40,000
Rent: $3,000 Total Liabilities: $40,000
Total Current Assets: $55,000 Equity:
Non-Current Assets: Common Stock: 20,000
Land: $5,000

Total Assets: $60,000 Total Liabilities and equities: $60,000

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b- Balance of money = 52,000+5,000 – 40,000 = 17,000
Therefore, shareholders would receive $17,000. Note that rent cannot be sold.

c- Yes, it could pay up to 52,000 in dividends for stockholders which is the available cash
and since the loan payments start January 1, 2006. The bank would be upset since the
company would be at risk of not paying the interest in 2006 nor close the loan at the
end of 2007.