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. |
- 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?