Question

The balance sheet items of The Sweet Soda Shop (arranged in alphabetic al order) were as follows at the close of business on September 30, 2011:

Accounts Payable $8,500Furniture and Fixtures20,000 Accounts Receivable 1,250Land$55,000 Building 45,500 Notes Payable?Capital Stock 50,000Retained Earnings4,090 Cash 7,400Supplies3,440\begin{array}{|cc} \text {Accounts Payable } & \$ 8,500 & \text{Furniture and Fixtures} & 20,000 \\ \text { Accounts Receivable } & 1,250 & \text{Land} & \$55,000 \\ \text { Building } & 45,500 & \text{ Notes Payable} & ?\\ \text {Capital Stock } & 50,000 & \text {Retained Earnings} & 4,090\\ \text { Cash } & 7,400 & \text{Supplies} & 3,440 \\ \end{array}

The transactions occurring during the first week of October were:
Oct. 3 Additional capital stock was sold for $30,000\$ 30,000. The accounts payable were paid in full. (No payment was made on the notes payable.)
Oct. 6 More furniture was purchased on account at a cost of $18,000\$ 18,000, to be paid within 30 days. Supplies were purchased for $1,000\$ 1,000 cash from a restaurant supply center that was going out of business. These supplies would have cost $1,875\$ 1,875 if purchased under normal circumstances.
Oct. 1-6 Revenues of $5,500\$ 5,500 were earned and paid in cash. Expenses required to earn the revenues of $4,000\$ 4,000 were incurred and paid in cash.
Instructions
c. Assume the notes payable do not come due for several years. Is The Sweet Soda Shop in a stronger financial position on September 30 or on October 6 ? Explain briefly.

Solution

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