In December 2014 Alexander Bedlam organized Soldit Properties Ltd. (Soldit), a company that sells real estate on behalf of clients. Alexander exchanged \($40,000\) in cash for 1,000 common shares of Soldit. When business actually began in January 2015 Alexander was very busy—so busy that he didn’t bother keeping any records. At the end of the month Alexander noticed that he had less than the \($40,000\) in cash that he started business with.

He didn’t understand how he could have been so busy and still have lost money.

Alexander has come to you for help to understand his situation. From your conversation with Alexander you obtain the following information:

i. During the month, five properties were sold with a sales value of \($1,200,000\). Soldit earns a commission of five percent of the sales value of the property.

ii. Sales assistants sold three of the five properties sold in January. These three properties had a total sales value of \($800,000\). Sales assistants receive a commission of four percent of the sales value of the properties they sell.

iii. The commission on one of the properties hasn’t been received. The client owes Soldit $16,000.

iv. During January Soldit made the following payments in cash:

v. Soldit has taken delivery of the car and the computer, fax, and copier. The price of the car was \($40,000\) and the price of the computer, fax, and copier was $10,000.

Required

a. Prepare an income statement for the month of January for Soldit.

b. Prepare a cash flow statement for January for Soldit. (To prepare the statement, organize the amounts into the different cash flow categories.)

c. How did Soldit perform in January? How should Alexander interpret these two statements?
Did Soldit perform as badly as Alexander seems to think? Explain your answer.

Transcribed Image Text:

Salaries Commissions to sales assistants Down payment on car Rent $ 4,400 32,000 6,000 2,400 Purchase of computer, fax, and copier Utilities 4,000 1,000