Question

Teagan Fitzgerald is the owner of Newport Jewelry, a store specializing in gold, platinum, and special...

Teagan Fitzgerald is the owner of Newport Jewelry, a store specializing in gold, platinum, and special stones. During the past year, in response to increased demand, Teagan doubled her selling space by expanding into the vacant building space next door to her store. This expansion has been expensive because of the need to increase inventory and to purchase new store fixtures and equipment, including carpeting and state-of-the-art built-in fixtures. Teagan notes that the company’s cash position has gone down and she is worried about future demands on cash to finance the growth.

     Teagan presents you with a statement showing the assets, liabilities, and her equity for year-end 2018 and 2019, and asks your opinion on the company’s ability to pay for the recent expansion. She did not have income and expense data available at the time. She commented that she had not made any new investment in the business in the past two years and was not financially able to do so presently. The information presented is shown below:

December 31, 2018

December 31, 2019

Assets

Cash

$

150,000

$

30,000

Accounts Receivable

45,000

91,500

Inventory

105,000

234,000

Prepaid Expenses

6,000

9,000

Store Fixtures and Equipment

180,000

390,000

Total Assets

$

486,000

$

754,500

Liabilities and Owner’s Equity

Liabilities

Notes Payable (due in 4 years)

$

90,000

$

240,000

Accounts Payable

132,000

171,000

Salaries Payable

18,000

19,500

Total Liabilities

$

240,000

$

430,500

Owner’s Equity

Teagan Fitzgerald, Capital

246,000

324,000

Total Liabilities and Owner’s Equity

$

486,000

$

754,500


Required:
Prepare classified balance sheets for Newport Jewelry for December 31, 2018, and December 31, 2019. (Ignore depreciation.)

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