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Los Niños Day Care Center
Reece, James S.
Functional Area(s):
   Financial Accounting
   For Profit
Difficulty Level: Beginner
Pages: 2
Teaching Note: Available. 
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First Page and the Assignment Questions:

After six months of operations, Consuelo Gonzalez wanted to analyze the performance of Los Niños Day Care Center. She wanted to know where the company stood as of December 31, 2003, and what its future prospects were.

Los Niños Day Care Center was a company organized by Ms. Gonzalez in 2003 to provide supervised care, preschool education, a snack, and a noonday meal primarily for children of working mothers. To provide for the center's initial capital, Ms. Gonzalez took out a $42,000 mortgage on her own house. She invested $36,000 of this in common stock of the center. Friends of hers invested $88,000 in cash, receiving stock in return. A government agency made a one-year loan of $11,930 to the center.

With these funds, the center purchased property for $67,200, of which $13,400 was for land and $53,800 was for a building on the land. The purchase was financed in part with a $45,400 mortgage, the remainder being paid in cash. Interest on the mortgage was to be paid quarterly, but no principal repayment was required until the company had become established. The center also purchased $23,400 of furniture and equipment for cash.

During the first six months of operation, which ended December 31, 2003, the center paid out the following additional amounts in cash:

Salary* to Ms. Gonzalez $13,500
Salaries* of part-time employees 8,842
lnsurance (one-year policy) 2,650
Utilities 1,710
Food and supplies 7,340
Interest and miscellaneous 5,750
Total paid out $39,792
*Includes payroll taxes. . . .


  1. Prepare a balance sheet for Los Niños Day Care Center as of December 31, 2003. To minimize errors, you should treat each event separately; show the items that are affected and the amount of increase or decrease in each item. For events that affect shareholders' equity, other than the initial investment items, increase or decrease the Retained Earnings item.. Show noncurrent assets at their original cost. Be sure you record Ms. Gonzales’ mortgage correctly.
  2. Prepare an income statement and statement of cash flows for the first six months of operations.
  3. Should the noncurrent assets be reported on the December 31, 2003, balance sheet at their cost or at some other amount (The amount need not be calculated.) If at some other amount, what items not now present should be included or excluded?
  4. Does it appear likely that Los Niños Day Care Center will become a viable company; that is, is it likely to be a profitable company? Why or why not?s