Hit Scripts Is a Service

Hit Scripts is a service

Hit Scripts is a service-type enterprise in the entertainment field, and its manager, Joe Russell, has only a limited knowledge of accounting. Joe prepared the following balance sheet, which, although arranged satisfactorily, contains certain errors with respect to such concepts as the business entity and asset valuation. Joe owns all of the corporation’s outstanding stock.


HIT SCRIPTS BALANCE SHEET NOVEMBER 30, 2011

Assets Liabilities & Owner’s Equity
Cash . . . . . . . . . . . . . . . . . . . . $     5,000 Liabilities:
Notes Receivable . . . . . . . . . . 4,000 Notes Payable. . . . . . . . . . . . $   65,000
Accounts Receivable . . . . . . . 3,000 Accounts Payable . . . . . . . . . 32,000
Land . . . . . . . . . . . . . . . . . . . . 60,000 Total Liabilities. . . . . . . . . . $ 97,000
Building. . . . . . . . . . . . . . . . . . 75,000 Owner’s Equity:
Office Furniture. . . . . . . . . . . . 9,600 Capital Stock. . . . . . . . . . . . . 10,000
Other Assets. . . . . . . . . . . . . . 25,000 Retained Earnings. . . . . . . . . 74,600
Total . . . . . . . . . . . . . . . . . . . . $181,600 Total . . . . . . . . . . . . . . . . . . . . . $181,600

In discussion with Joe and by inspection of the accounting records, you discover the following facts:
1.     The amount of cash, $5,000, includes $2,000 in the company’s bank account, $1,200 on hand in the company’s safe, and $1,800 in Joe’s personal savings account.
2.     One of the notes receivable in the amount of $600 is an IOU that Joe received in a poker game five years ago. The IOU is signed by “G.W.,” whom Joe met at the game but has not heard from since.
3.     Office furniture includes $2,500 for an Indian rug for the office purchased on November 15. The total cost of the rug was $10,000. The business paid $2,500 in cash and issued a note payable to Jana Carpet for the balance due ($7,500). As no payment on the note is due until January, this debt is not included...