Chapter 2 B Financial Statements Howard James the founder and manager of Old Town Playhouse The business wishes to to prepare a balance sheet for the business. He prepared the following balance sheet hank loan to finance the production of its next play. As part of the loan application Jante and correctly but which contains several with respect to such concepts heat ing entity and the valuation of assets, Tibilities, and owners equity Assets OLD TOWN PLAYHOUSE BALANCE SHEET SEPTEMBER 30, 2015 Liabilities & Owner's Equity $19.400 Liabilities 150-200 Accounts Payable 3.000 Salaries Payable 26.000 Total Liabilities 10.000 Owner's Equity 15.000 Howard Jaffe, Capital $223,600 Total $ 7.000 32.000 5 39.000 Cash Accounts Receivable... Props and Costumes Theater Building Lighting Equipment Automobile 184 500 5222 3.500 Total it was not included amee (ST5,000). As this note is not due until January of next year In discussions with Jaffe and by reviewing the accounting records of Old Town Playhouse you discover the following facts 1. The amount of cash. $19,400, includes $16.000 in the companys bank account, 52,400 2. The accounts receivable, listed as $150.200, include $10,000 owed to the business by Dell Ine. The remaining 5140,200 is Jaffes estimate of future ticket sales from September 3 3. Jaffe explains to you that the props and costumes were purchased several days ago for $18.00 The business paid $3,000 of this amount in cash and issued a note payable to Ham Super Co. for the remainder of the purchase the company liabilities. 4. Old Town Playhouse rents the theater building from Time International. The $26,000 shown in the balance sheet represents the rent puid through September 30 of the current year. Time International acquired the building seven years ago at a cost of $180,000, 5. The lighting equipment was purchased on September 26 at a cost of $10,000, but the stepe manager says that it isn't worth a dime. 6. The automobile is Jaffe's classic 1935 Ford, which he purchased two years ago for $12,000 He recently saw a similar car advertised for sale at $15,000. He does not use the car in the business, but it has a personalized license plate that reads "OTPLAY." 7. The accounts payable include business debts of 56,000 and the $1,000 balance of Jaffe's per- sonal Visa card. 8. Salaries payable include $30,000 offered to Robin Needelman to play the lead role in a new play opening next December and $2,000 still owed to stagehands for work done through Sep- tember 30 9. When Jaffe founded Old Town Playhouse several years ago, he invested $20,000 in the busi- ness. However, New Theatre, Inc., recently offered to buy his business for $184,600. There- fore, he listed this amount as his equity in the above balance sheet. Instructions a. Prepare a corrected balance for Old Town Playhouse at September 30, 2015. b. For each of the nine numbered items above, explain your reasoning for deciding whether or not to include the items in the balance sheet and in determining the proper dollar valuation