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Dr Fang (to be used in the workshop in week 1)

Month-end balance sheet amounts for the dental practice of Dr Fang, a local dentist, for three consecutive months are presented below. The information is complete except for the balance in the owners equity account. 31 October $ 9 100 16 100 700 29 800 81 000 33 000 10 100 5 100 34 700 ? 30 November $ 3 900 16 500 800 29 700 80 800 33 000 3 100 4 100 34 300 ? 31 December $ 3 000 8 050 600 38 300 80 600 33 000 3 000 4 800 33 900 ?

Cash Accounts receivable Prepaid insurance Surgery equipment Building Land Accounts payable Wages payable Mortgage payable Owners Equity

Required
a b Determine the balance of Dr Fangs equity at the end of each month. Prepare a Balance Sheet for the business at the end of December.

Additional Problem
ABC and XYZ Companies ABC Company and XYZ Company conduct the same type of business. Both were recently formed; thus the Balance Sheet figures for assets can be assumed to be at current market valuation. The Balance Sheet of the two companies at 30 June 2006 were as follows: ABC COMPANY XYZ COMPANY Balance Sheet Balance Sheet as at 30 June 2006 as at 30 June 2006 _____________________________________________________________________

Assets
Current Assets Cash at bank Accounts receivable Total Current Assets Non-current Assets Office equipment Land Building Total Non-current Assets Total Assets Liabilities Current Liabilities Accounts payable Unsecured loan payable Total Current Liabilities Non-current Liabilities Total Liabilities

2 400 4 800 7 200 6 000 18 000 30 000 54 000 61 200

12 000 24 000 36 000 600 3 600 6 000 10 200 46 200

21 600 31 200 52 800 ---52 800

4 800 7 200 12 000 ---12 000

Net Assets Owners Equity Capital Total Owners Equity

8 400

34 200

8 400 8 400

34 200 34 200

Required: a Assuming that you are a banker and that the owner of each business has applied for a short-term loan (repayable in six months) of $6000, which application would you select as being the more favourable? Why? Assuming that you are a businessperson interested in buying one or both companies, and the owner of each has indicated her intention to sell, for which business would you be willing to pay the higher price, assuming you will be taking over the existing liabilities of the company? Explain. If the existing owners agreed to be accountable for all the existing liabilities, how would this change your decision in (b) above, if at all?

(Adapted from problems in Bazley M, Contemporary Accounting, 4th edn, Nelson Thomson Learning, 2001.)

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