Sheffield Corp., public camping ground near the Four Corners National Recreation Area, has compiled the following financial information as of December 31, 2019.
Revenues during 2019-camping fees $140,000 Notes payable $60,000
Revenues during 2019-general store 50,000 Expense during 2019 150,000
Accounts payable 11,000 Supplies on hand 2,500
Cash on hand 23,000 Common stock 20,000
Original cost of equipment 105,500 Retained earnings ?
Market value of equipment 140,000
Instructions
a. Determine Deer Park's net income for 2019.
b. Prepare a balance sheet for Deer Park as of December 31, 2019. (List assets in order of liquidity and liabilities from largest to smallest e.g. 10, 5, 3, 2.)

(a) $40,000

(b) See explanation below

Explanation:

(a) Net Income for 2019

Revenues during 2019 Camping fees = $140,000

Revenues during 2019 General store 50,000

Expense during 2019 $150,000

Net Income = Total Revenue - Expenses

Net Income = $140,000 + $50,000 - $150,000

Net Income = $40,000

(b) Prepare a balance sheet

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . .$. 23,000

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . .2,500

Equipment . . . . . . . . . . . . . . . . . . . . . . . . .140,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$165,500

Liabilities

Accounts Payable . . . . . . . . . . . . . . . . . . . . 11,000

Notes Payable . . . . . . . . . . .. . . . . . . . . . . . 60,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71,000

Stockholders' Equity

Common Stock . . . . . . . . . . . . . . . . . . . . . . 20,000

Retained Earnings . . . . . . . . . . . . . . . . . . . . 74,500

Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . .94,500

Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . . . .$165,500

Liabilities + Equity

Price of bond = $786.86

Explanation:

The value of the bond is the present value(PV) of the future cash receipts expected from the bond. The value is equal to present values of interest payment plus the redemption value (RV).

Value of Bond = PV of interest + PV of RV  

The value of bond would be worked out as follows:  

Step 1  

Calculate the PV of interest payments  

Annual interest payment  

= 6.6% × 1,000× 1/2= 33

PV of interest payment = A ×(1- (1+r)^(-n))/r  

r- semi-annual yield = 8.9%/2 =  4.45 %

n- 20× 2= 40

PV of interest payment= 33 × (1-(1.0445^(-40)/0.0445 =  611.611

Step 2  

PV of redemption Value  

PV = RV × (1+r)^(-n)

PV = 1,000 × (1.0445)^(-40) = 175.25

Step 3  

Price of bond

Price of bond= 611.611 + 175.25 = 786.862

Price of bond = $786.86