Question: On October 1, Lou Marks opened Eagle
On October 1, Lou Marks opened Eagle Restaurant, Inc. Marks is now at a crossroads. The October financial statements paint a glowing picture of the business, and Marks has asked you whether he should expand the business. To expand the business, Marks wants to be earning net income of $10,000 per month and have total assets of $50,000. Marks believes he is meeting both goals. To start the business, Marks invested $25,000, not the $15,000 amount reported as Common stock on the balance sheet. The business issued $25,000 of common stock to Marks. The bookkeeper plugged the $15,000 Common stock amount into the balance sheet to make it balance. The bookkeeper made some other errors too. Marks shows you the following financial statements that the bookkeeper prepared:
Requirement
1. Prepare corrected financial statements for Eagle Restaurant, Inc.: Income Statement, Statement of Retained Earnings, and balance sheet. Then, based on Marks goals and your corrected statements, recommend to Marks whether he should expand the restaurant.
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Eagle Restaurant, Inc. Income Statement Month Ended October 31, 2011 Revenues: Investments by owner .. Unearned banquet sales revenue... $25,000 .. . 3,000 $28,000 Expenses: Wages expense $ 5,000 Rent expense........ 4,000 Dividends. 3,000 Depreciation expense-fixtures.. 1,000 13,000 Net income... $15,000 Eagle Restaurant, Inc. Balance Sheet October 31, 2011 Assets: Liabilities: $ 8,000 Accounts payable.. $ 7,000 Cash.. Prepaid insurance. 1,000 Sales revenue.. 32,000 Insurance expense . 1,000 Acuumulated depreciation- fixtures . Food inventory.. Cost of goods sold (expense). 5,000 1,000 12,000 40,000 Fixtures (tables, chairs, etc.).. 24,000 Owners' equity: .. Dishes and silverware.. . Common stock.. . 4,000 $55,000 15,000 $55,000
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