Help with basic Income Statement/ Balance Sheet

Jan 4, 2013
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Kellen, Meagan, Andrew, Ralph, Brenda, Christine, and Chris started a business selling a new product - a "read-only" MP3 player (an MP3 player with music burned into memory). The user could only listen to the music that was on the player. The initial product configuration contained forty Grateful Dead concerts - almost 160 hours of music. The business was started as an Internet business requiring a very small initial investment. Indeed, the partners pooled all their cash and came up with $15,000. On the day the cash was raised, March 1, 2006, the company started business as a partnership with the name Talented TAs (TTA). In the first month TTA quickly acquired a server and an initial stock of players. The server was purchased for $4,000 cash and had an expected useful life of two years. At the end of the two years the server could be sold for $400. The initial 200 players were purchased from a supplier for $8,000 of which $3,000 was paid on delivery and the balance was due in 60 days. Rent and utilities were $1,000 per month, prepaid at the beginning of the month. The selling price of the product was established at $100.

1) Suppose that as of March 31, 2006 TTA had sold 100 players from the initial purchase, all for cash. Assume that the next order from TTA's supplier was not due to arrive until April 1st and the only non-current asset held by TTA was the server. If the player supplier is not paid early, what is the total book value of TTA's Liabilities plus Shareholders’ Equity on March 31, 2006?

2) Suppose that instead of selling 100 players for cash, TTA had sold 50 players for cash and 50 players to customers who would pay in 60 days. What EBIT would TTA show on the March 2006 one-month income statement?


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