Question
Consultex Company was founded in 2014 as a small financial consulting business. The company had done reasonably well in 20142016, but noticed that its cash
Consultex Company was founded in 2014 as a small financial consulting business. The company had done reasonably well in 20142016, but noticed that its cash was beginning to dwindle early in 2017. In January 2017, Consultex had paid $16,700 to purchase land and repaid $2,350 principal on an existing promissory note. In March 2017, the company paid $1,650 cash in dividends and $1,000 to repurchase Consultex shares that had previously been issued for $1,000. To improve its cash position, Consultex borrowed $7,800 by signing a new promissory note in May 2017 and also issued shares to a new private investor for $8,000 cash. Comparative balance sheets and income statements for the most recent fiscal year are presented below.
CONSULTEX COMPANY Balance Sheet October 31 | ||||||
2017 | 2016 | |||||
Assets | ||||||
Cash | $ | 9,390 | $ | 14,900 | ||
Accounts Receivable | 15,350 | 12,650 | ||||
Prepaid Rent | 4,200 | 4,550 | ||||
Land | 31,050 | 14,350 | ||||
Total Assets | $ | 59,990 | $ | 46,450 | ||
Liabilities and Shareholders Equity | ||||||
Wages Payable | $ | 650 | $ | 3,400 | ||
Income Taxes Payable | 3,350 | 3,350 | ||||
Notes Payable (long-term) | 20,200 | 14,750 | ||||
Contributed Capital | 15,000 | 8,000 | ||||
Retained Earnings | 20,790 | 16,950 | ||||
Total Liabilities and Shareholders Equity | $ | 59,990 | $ | 46,450 | ||
CONSULTEX COMPANY Income Statement For the Year Ended October 31 | ||||||
2017 | 2016 | |||||
Sales Revenue | $ | 153,000 | $ | 158,100 | ||
Wages Expense | 94,860 | 94,860 | ||||
Rent Expense | 27,000 | 21,000 | ||||
Other Operating Expenses | 23,300 | 24,200 | ||||
Income before Income Tax Expense | 7,840 | 18,040 | ||||
Income Tax Expense | 2,350 | 5,410 | ||||
Net Income | $ | 5,490 | $ | 12,630 | ||
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