Listed in random order are the items to be included in the balance sheet of Rocky Mountain Lodge at December 31, year 1. Equipment $47,040 Buildings $600,000
Land 510,000 Capital stock 162,000
Accounts payable 65,760 Cash 37,680
Accounts receivable 12,720 Furnishings 70,440
Salaries payable 40,200 Snowmobiles 18,480
Interest payable 14,400 Notes payable 744,000
Retained earnings ?

Required:
a. Prepare a balance sheet at December 31, 2011.
b. Assume that no payment is due on the notes payable until 2013. Does this balance sheet indicate that the company is in a strong financial position as of December 31, 2011? Explain briefly.

Rocky Mountain Lodge

a) Balance Sheet

At December 31, Year 1:

Assets:

Current Assets:

Cash                              37,680

Accounts receivable     12,720

Current assets                               $50,400

Long-term Assets:

Furnishings                   70,440

Snowmobiles                 18,480

Equipment                    47,040

Buildings                    600,000

Land                            510,000

Long-term assets                       1,245,960

Total                                         $1,296,360

Liabilities and Equity:

Liabilities

Current Liabilities:

Accounts payable       65,760

Salaries payable         40,200  

Interest payable          14,400

Current liabilities                       $120,360

Long-term liabilities

Notes payable                            744,000

Total liabilities                          $864,360

Equity:

Capital stock            162,000

Retained earnings  270,000

Total equity                               432,000

Total                                     $1,296,360

b) The company is not in a strong financial position as of December 31, 2011.

c) Its current assets cannot settle its current liabilities.  There is doubt if the company will be able to settle the long-term notes payable at the level of its current operations because the basis does not exist.  It will still require funds to finance operations, as most of the investments are made in long-term assets (especially land and building).

Explanation:

a) Data and Calculations:

Cash                              37,680

Accounts receivable     12,720

Furnishings                   70,440

Snowmobiles                 18,480

Equipment                    47,040

Buildings                    600,000

Land                            510,000

Total                      $1,296,360

Accounts payable       65,760

Salaries payable         40,200  

Interest payable          14,400

Notes payable         744,000

Capital stock            162,000

Retained earnings  270,000

Total                    $1,296,360