Three friends Moe, Larry and Curly formed a Los Angeles-based construction company in 2017 when they graduated
Question:
Three friends Moe, Larry and Curly formed a Los Angeles-based construction company in 2017 when they graduated from USC called MLC Corp. There were 3,000 outstanding shares and 997,000 shares in Treasury. Moe, Larry and Curly each owned 1,000 shares. Each of them had contributed $100 when MLC was founded. The business concept was simple: buy property, entitle the property, and build single-family homes in the $1,000k range. In the case of MLC, land was considered “land inventory”. The actual business process went like this: identify a minimum of 1.8 acres of land, purchase the land, subdivide the land into six 0.3 acre lots, permit the residential construction, build the single-family home and then sell them. Each 1.8- acre undeveloped lot cost about $1,200 so when subdivided six ways, the COGs cost per home was $200. Typically, the homes would be three story, two thousand (2,000) square feet and cost about $300 per square foot to build ($600k). So each house sold would “net’ a Gross Margin of $200.
On December 30, 2018 MLC had the following B/S amounts:
A/R $2,000, PIC $300, LTD $0, PPE $0, Cash $500, Land Inventory $400, Credit Line (C.L.) $300,Wages Payable $0, R/E $1,100, A/P $1,200
PROBLEMS TO SOLVE:
PROBLEM 1. Create the Balance Sheet (B/S) at December 30, 2018 based on the above B/S information.
PROBLEM 2. Perform the year to date, 2019 Balance Sheet Transactions using your Problem #1 answers as the starting balances for the B/S. The following occurred between January 1, 2019 and September 23, 2019:
1. MLC collected cash $1,000k of A/R
2. MLC found another 1.8 acre parcel to purchase and enters negotiations to purchase it
3. MLC took out a one-year loan of $800 from the bank secured by the land
4. MLC purchased the parcel of land for $1,200 using the bank loan and cash
5. MLC subdivided the parcel into six separate properties
6. MLC sold seven (7) houses for $1,000 each for cash
7. MLC recognized the expense of 7 lots (land as inventory) at $200 each
8. MCL recognized the expense of each home at $650 using its subcontractors within A/P
9. MLC recognized cash costs of SG&A of $800. Within the $800 was $120 salary for each owner
10. MLC paid $20 (twenty dollars NOT $20,000) per share cash in dividends
11. MLC paid cash to pay off all of its short-term bank borrowings
12. MLC paid $2,500 of its A/P in cash
13. MLC borrowed $360 (3 yr loan) from Mercedes Benz financing to purchase three AMG E53 Sedans
PROBLEM #3 Create a Balance Sheet (B/S) at the end of the day September 23, 2019
PROBLEM #4 Create an Income Statement (I/S) for January 1 thru September 23, 2019
PROBLEM #5 Create a Statement of Retained Earnings (R/E) for Jan 1 thru Sep 23, 2019 PROBLEM #6 Create a Statement of Cash Flows
Taxation for Decision Makers 2014
ISBN: 9781118654545
6th edition
Authors: Shirley Dennis Escoffier, Karen Fortin