Question

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.)

Answer 1