Problem 1 - 5

Trans. Cash +
Accounts
Receivable +
Prepaid
Rent + Equipment +
Office
Supplies =
Accounts
Payable +
1 25,000
2 (500) 500
3 8,000 8,000
4 (500) 500
5 (750)
6 (3,000)
7 2,000 8,000
8 (5,000) (5,000)
9 (100)
10 1,000
17,250 + 8,000 + 500 + 8,000 + 400 = 4,000 +
34,150 = 34,150
Owner's
Equity Description
25,000 Initial investment
Prepaid Rent
Equipment
Office Supplies
(750) Advertisement Expense Net Sales
(3,000) Salaries Expense Cost of Sales
10,000 Revenue from Sales Gross Margin
Partial Payment for Equipment
(100) Office Supplies Expense Operating Expenses:
(1,000) Miscellaneous Expense Advertisement Expense
30,150 Salaries Expense
Office Supplies Expense
Miscellaneous Expense
Total Operating Expenses
Total Operating Income
Net Income before Tax
Provision for Income Tax
Net Income
Statement of Retained Earnings
Retained Earnings at beginning of year
Add: Net Income
Deduct: Dividends
Retained Earnings at EOY
Bon Voyage Travel
Income Statement
For June end of month
10,000 Current Assets:
- Cash 17,250
10,000 Accounts Receivable 8,000
Prepaid Rent 500
Office Supplies 400
750 Total Current Assets 26,150
3,000
100 Fixed Assets:
1,000 Equipment 8,000
4,850
Total Assets 34,150
5,150
Current Liabilities:
5,150 Accounts Payable 4,000
-
5,150 Owner's Equity 30,150
Total Liabilities and Owner's Equity 34,150
-
5,150
-
5,150
Bon Voyage Travel Bon Voyage Travel
Income Statement Balance Sheet
For June end of month For June end of month
Case 3-3: California Dispensers, Inc.
Transaction Analysis
Trans. Cash + Equipment +
Parts
Inventory + Patent =
Accounts
Payable +
Interest
Payable
1 80,000 120,000
2 (2,500)
3 (85,000) 85,000
4 (25,000)
5 (212,100) 212,100
6 30,000 30,000
500
7 (145,000)
8 (62,000)
9 (63,000)
10 (197,000)
11 598,500
12
13 (8,500)
14 (20,000)
15
16 (5,000)
17 22,500
18 (500) (500)
(30,000) (30,000)
78,400 + 76,500 + 15,100 + 100,000 = 22,500 + -
270,000 = 270,000
ANSWERS:
1. Use it to assess the profitability of the company, and ultimately to decide if they would want to proceed with the investment. It can also support decision
to reduce projected costs in operations, or increase sales target to stay profitable.
2. Transaction Table
3. Income statement
4. EOY Balance sheet
5. Yes, because in the end the company is still profitable. The initial investment was 200,000 with projected profit of 47,500. The value of the company
will increase by XX% just after the 1st year of operation alone with minimal debt. Given that they incurred incorporation and development expenses during the first year, it can be projected conservatively
that their profit will be significantly higher on the succeeding years of operation.
+
Owner's
Equity Description
200,000 Investment on Patent and Capital
(2,500) Incorporation Cost to Expense (based on no. 12)
Equipment Purchase
(25,000) Product Redesign Cost to Expense (based on no. 12)
Component Parts Purchase
Short Term Bank Loan
(500) Interest Payable from Bank Loan
(145,000) Payroll Expense (based on 18)
(62,000) Manufacturing Expense
(63,000) Selling, General and Administrative Expense
(197,000) Component Parts Inventory Expense, End. Bal. $15,100
598,500 Sales in cash
Incorporation and product redesign to be expensed
(8,500) Equipment Depreciation
(20,000) Patent Expense (120,000 over 6 years)
No Inventory of Partial or Completed Dispenser
(5,000) Cash Dividends
(22,500) Income tax expense
Interest expense
Accounts payable (excl. Income tax) paid in cash
+ 247,500
1. Use it to assess the profitability of the company, and ultimately to decide if they would want to proceed with the investment. It can also support decision
5. Yes, because in the end the company is still profitable. The initial investment was 200,000 with projected profit of 47,500. The value of the company
will increase by XX% just after the 1st year of operation alone with minimal debt. Given that they incurred incorporation and development expenses during the first year, it can be projected conservatively
Net Sales 598,500
Cost of Sales 197,000
Gross Margin 401,500
Operating Expenses:
Product Redesign Expense 25,000
Selling, General and Admin Expense 63,000
Manufacturing Expense 62,000
Incorporation Expense 2,500
Payroll Expense 145,000
Total Operating Expenses 297,500
Total Operating Income 104,000
Other Expenses:
Interest Expense 500
Patent Expense 20,000
Depreciation Expense 8,500
Total Other Expenses 29,000
Net Income before Tax 75,000
Provision for Income Tax 22,500
Net Income 52,500
Statement of Retained Earnings:
Retained Earnings at beginning of year -
Add: Net Income 52,500
Deduct: Dividends 5,000
Retained Earnings at EOY 47,500
California Dispensers, Inc.
Income Statement
For the year ended December 31, XXXX
will increase by XX% just after the 1st year of operation alone with minimal debt. Given that they incurred incorporation and development expenses during the first year, it can be projected conservatively
Current Assets:
Cash 78,400
Parts Inventory 15,100
Total Current Assets 93,500
Fixed Assets:
Equipment 85,000
Less: Acc.Depreciation 8,500
Total Fixed Assets 76,500
Other Assets:
Intangible Assets (Patent) 100,000
Total Assets 270,000
Current Liabilities:
Accounts Payable 22,500
Total Liabilities 22,500
Owner's Equity:
Paid-in Capital 200,000
Retained earnings 47,500
Total Owner's Equity 247,500
Total Liabilities and Owner's Equity 270,000
California Dispensers, Inc.
Balance Sheet
For the year ended Dec 31, XXXX
Reporting Period: March 31
Trans. Cash +
Accounts
Receivable +
Merchandise
Inventory + Supplies + Cash Register +
1 10,000
2 1,000
3 (3,300) 3,300
4 (250) 250
5 (100) 100
6 (150)
7 (2,000)
5,200 - 3,300 100 250
Prepaid
Advertisement +
Computer &
Software =
Accounts
Payable +
Interest
Payable + Owner's Equity
10,000
600 (600)
1,000
150
2,000
150 2,000 = 10,000 600 400
11,000 = 11,000
Description
Loan from Cousin with Interest
Interest Expense
Investment
Merchandise Inventory
Cash Register Deposit
Supplies
Prepaid Advertising
Computer & Software
March 1 - June 30 Transactions
Trans. Cash +
Accounts
Receivable +
Merchandise
Inventory + Supplies + Cash Register +
Prepaid
Rent +
1 10,000
2 1,000
3 (3,300) 3,300
4 (250) 250
5 (100) 100
6 (1,200) 1,200
7 (150)
8 (2,000)
9 (1,800)
1 7,400
320
2 (1,510)
3 (1,800)
4 (2,900) 2,900
(2,100)
5 (80)
6
7
8
9
3,390 + 320 + 4,100 + 20 + 250 + 1,200
Accounts Debit Credit
Cash 3,390.00
Account Receivable 320.00
Merchandise 4,100.00
Supplies 20.00
Cash Register 250.00
Prepaid Rent 1,200.00
Ribbons n' Bows, Inc.
Trial Balance
April 1 to June 30
Computer and Software 1,750.00
Sewing Machine 1,740.00
Accounts Payable 15,290.00
Investment 1,000.00
Interest Payable 600.00
Sales 7,720.00
Salaries expense 6,800.00
Rent expense 1,800.00
Merchandise expense 2,100.00
supplies expense 80.00
Advertisement expense 150.00
Depreciation expense 310.00
Interest Expense 600.00
24610 24610
Prepaid
Advertisement +
Computer &
Software +
Sewing
Machine =
Accounts
Payable +
Interest
Payable + Owner's Equity
10,000
600 (600)
1,000
150
2,000
1,800
7,400
320
(1,510)
90 (90)
(1,800)
(2,100)
(80)
5,200 (5,200)
(150) (150)
(60) (60)
(250) (250)
- + 1,750 + 1,740 = 15,290 + 600 + (3,120)
12,770 = 12,770
Receipts:
Investment 11,000
Sales 7,400.00
Total Receipts 18,400.00
Payments:
Merchandise Purchase 6,200.00
Cash Register Deposit 250.00
Ribbons n' Bows, Inc.
Cash Flow Statement
April 1 to June 30
Supplies Purchase 100.00
Prepaid Rent 1,200.00
Prepaid Advertising 150.00
Computer and Software 2,000.00
Sewing Machine Purchase 1,800.00
Salaries expense 1,510.00
Rent expense 1,800.00
Total Payments 15,010.00
Increase: 3,390.00
Description
Loan from Cousin with Interest
Interest Expense
Investment
Merchandise Inventory Purchase Net Sales
Cash Register Deposit Cost of Sales
Supplies Purchase Gross Margin
Prepaid Rent
Prepaid Advertising Operating Expenses:
Computer & Software Purchase Salaries Expense
Sewing Machine Purchase Rent Expense
Supplies Expense
Sales cash Advertisement Expense
Sales accounts receivable Total Operating Expenses
Salaries Expense
Salary Expense Payable Total Operating Income
Rent Expense
Merchandise Inventory Purchase Other Expenses:
Merchandise Expense (COGS) Interest Expense
Supplies Expense Depreciation Expense (Sewing, Computer)
Salaries Expense Payable Total Other Expenses
Advertisement Expense
Depreciation Sewing Machine Net Income before Tax
Depreciation Computer Provision for Income Tax
Net Income
Statement of Retained Earnings:
Retained Earnings at beginning of year
Add: Net Income
Deduct: Dividends
Retained Earnings at EOY
Ribbons n' Bows, Inc.
Income Statement
April 1 to June 30
7,720
2,100 Current Assets:
5,620 Cash 3,390
Accounts Receivable 320
Merchandise Inventory 4,100
1,510 Supplies 20
1,800 Total Current Assets
80
150 Fixed Assets:
3,540 Cash Register 250
Prepaid Rent 1,200
2,080 Computer & Software 2,000
Sewing Machine 1,800
Less: Depreciation (Sewing, Computer) 310
600 Total Fixed Assets
310
910 Total Assets
1,170
Current Liabilities:
1,170 Accounts Payable 15,290
Interest Payable 600
Total Liabilities
- Owner's Equity:
1,170 Paid-in Capital (4,290)
- Retained Earnings 1,170
1,170 Total Owner's Equity
Total Liabilities and Owner's Equity
Ribbons n' Bows, Inc. Ribbons n' Bows, Inc.
Income Statement Balance Sheet
April 1 to June 30 April 1 to June 30
7,830
4,940
12,770
15,890
(3,120)
12,770
Ribbons n' Bows, Inc.
Balance Sheet
April 1 to June 30