The Carson Realty Company (CRC) owned several apartment buildings in Greater Carson, a small Midwestern community. It rented studio apartments, as well as one- and two-bedroom apartment units to individuals—mainly university students—in the town. CRC began operations in July 2002. During the month of July, the following events occurred: | July 1 | The company borrowed $24,000,000 on a 20 year note to finance its activities. There was a one-month grace period before interest was due on the note. Principal payments were due and payable on the first day of each month, beginning on August 1. | | July 5 | The company purchased an apartment building that was 90% occupied. After all closing costs, legal fees, and other purchase-related transactions had been completed, the building cost $15,000,000. | | July 11 | $500,000 in materials for renovations and repairs were purchased on credit. Payment was due August 11. | | July 14 | Tenants in 100 rental units paid their rent, which averaged $600 per unit. | | July 15 | Building staff was paid for the first half of July. Total payroll was $4,000. | | July 28 | Tenants in 200 rental units paid their rent, which averaged $500 per unit. | | July 30 | Utilities for the month were paid, totaling $15,000. | | July 31 | Building staff was paid for the last half of July. Total payroll was $5,000. | Assignment - Prepare a balance sheet for CRC as of July 31, 2002. To do so, draw up a basic balance sheet format, and make entries to the appropriate accounts for each event described above.
- By how much did the entity’s equity increase during July 2002? Why?
- How has CRC financed its assets? Is this good or bad?
- What questions might you ask CRC’s management about its strategy and its financial management decisions?
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