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classify the payment of accounts payable and the purchase of supplies as operating a 654810

Preparing a Balance Sheet and Statement of Cash Flow; Effects of Business Transactions

The balance sheet items for The Town Bakery (arranged in alphabetical order) were as follows at August 1, 2005. (You are to compute the missing figure for retained earnings.)

(Rs.) (Rs.)
Accounts Payable 16,200 Capital Stock 80,000
Accounts Receivable 11,260 Land 67,000
Building 84,000 Notes Payable 74,900
Cash 6,940 Salaries Payable 8,900
Equipment and Fixtures 44,500 Supplies 7,000

During the next two days, the following transactions occurred:

Aug. 2 Additional capital stock was sold for Rs. 25,000. The accounts payable were paid in full. (No payment was made on the notes payable or income taxes payable.)

Aug. 3 Equipment was purchased at a cost of Rs. 7,200 to be paid within 10 days. Supplies were purchased for Rs.1,250 cash from a restaurant supply center that was going out of business. These supplies would have cost Rs.1,800 if purchased through normal channels.

Instructions

  1. Prepare a balance sheet at August 1, 2005.
  2. Prepare a balance sheet at August 3, 2005, and a statement of cash flows for August 1 3. Classify the payment of accounts payable and the purchase of supplies as operating activities.
  3. Assume the note payable does not come for several years. Is The Town Bakery in a stronger financial position on August 1 or on August 3? Explain briefly.

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