Moon Corporation

JULY 31, 2011Balance sheet

July 31, 2011

AssetsLiabilities & Owners’ Equity

Cash . . . . . . . . . . . . . . . . $ 18,000Liabilities:

Accounts Receivable . . . 26,000Notes Payable

Land . . . . . . . . . . . . . . . . 37,200(due in 60 days). . . . . . . . . . . . . $ 12,400

Building. . . . . . . . . . . . . . 38,000Accounts Payable . . . . . . . . . . . . . 9,600

Office Equipment . . . . . . 1,200Total liabilities . . . . . . . . . . . . . . $ 22,000

Stockholders’ equity:

Capital Stock . . . . . . . . . $60,000

Retained Earnings. . . . . 38,400 98,400

Total . . . . . . . . . . . . . . . . $120,400 Total . . . . . . . . . . . . . . . . . . . . . . . . . $120,400

STAR CORPORATIONBALANCE SHEET

Star Corporation

JULY 31, 20112011Balance sheet

July 31, 2011

Assets Liabilities & Owners’ Equity

Cash . . . . . . . . . . . . . . . . $ 4,800Liabilities:

Accounts Receivable . . . 9,600Notes Payable

Land . . . . . . . . . . . . . . . . 96,000(due in 60 days). . . . . . . . . . . . . $ 22,400

Building. . . . . . . . . . . . . . 60,000Accounts Payable . . . . . . . . . . . . . 43,200

Office Equipment . . . . . . 12,000Total liabilities . . . . . . . . . . . . . . $ 65,600

Stockholders’ equity:

Capital Stock . . . . . . . . . $72,000

Retained Earnings. . . . . 44,800 116,800

Total . . . . . . . . . . . . . . . . $182,400 Total . . . . . . . . . . . . . . . . . . . . . . . . . $182,400

Instructions

a. Assume that you are a banker and that each company has applied to you for a 90-day loan of

$12,000. Which would you consider to be the more favorable prospect? Explain your answer fully.

b. Assume that you are an investor considering purchasing all the capital stock of one or both of the companies. For which business would you be willing to pay the higher price? Do you see any indication of a financial crisis that you might face shortly after buying either company? Explain your answer fully.