CASE 1 – 1 1. How would you report on the three – month operations of Ribbons an’ Bows, Inc.

, through June 30? Was the company profitable? (Ignore income taxes) Why did its cash in the bank decline during the three – month operating period? Why did its cash in the bank decline during the three month period? Ribbons an' Bows, Inc. Income Statement For the Period of April 1 to June 30, 2010 Sales Less: Cost of Sales Gross Sales Less: Salary Expense Rent Expense Supplies Expense Depreciation Expense - Computer Depreciation Expense - Sewing Machine Interest Expense Advertising Expense Profit (Before Taxes) Answer: Yes, the company is considered profitable. Ribbons an' Bows, Inc. Cash Flow Statement For the Period of April 1 to June 30, 2010 Cash, Beginning Sales Total Cash Inflow Salary Expense Rent Expense Inventory (Merchandise) Sewing Machine Total Cash Outflow Cash, End 1510.00 1800.00 2900.00 1800.00 8010.00 4000.00 7400.00 11400.00 7,720.00 (2,100.00) 5,620.00

2,100.00 1,600.00 1,800.00 80.00 250.00 60.00 200.00 150.00

(4,140.00) 1,480.00

Answer: The main reasons why the ending cash balance declined during the three month operating period is because of the purchase of additional assets such as the Sewing Machine (1800.00) after the preoperating period and the ending inventory is higher than the beginning inventory all because more inventory was bought in cash (2900.00) than the cost of goods sold (2100.00).

(8,010.00) 3390.00

2. How would you report the financial condition of the business on June 30, 2010? Answer: Because the data lacks some date indication of many of the transactions. Carmen should report the financial condition of the business in a balance sheet from the beginning of the operating period to June 30, 2010. Ribbons an' Bows, Inc. Balance Sheet Statement For the Period of April 1 to June 30, 2010 ASSETS Cash Accounts Receivable Inventory Supplies Prepaid Rent Computer (net) Sewing Machine (net) Cash Register Deposit TOTAL ASSETS LIABILITIES Salaries Payable Interest Payable Accounts Payable TOTAL LIABILITIES EQUITY Diaz, Capital Earnings/Profit TOTAL EQUITY TOTAL LIABILITIES & EQUITY

3,390.00 320.00 4,100.00 20.00 1,200.00 1,750.00 1,740.00 250.00 12,770.00

90.00 200.00 10,000.00 10,290.00

1,000.00 1,480.00 2,480.00

12,770.00

3. Do you believe Carmen’s first three months of operation could be characterized as “successful”? Explain your answer. Answer: I believed that the business is “successful” in its three months of operation. Carmen has acquired plenty of free assets during the rent of the building and has gain profit from her business. She is in a good start but will do better in the year if she would compensate herself for her effort and replay her cousin’s loan.

CASE 1 – 3 1. For each farm, prepare balance sheets as of the beginning and end of the growing season and an income statement for the season. (Do not be concerned that you do not have much understanding of what a balance sheet and income statement are; just use your intuition as best as you can.) IVAN’S PLOT Ivan's Field Balance Sheet Statement For the Beginning of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox TOTAL ASSETS

0 100 20 2 40 162

TOTAL LIABILITIES EQUITY Capital, Beginning TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

0

162 162 162

Ivan's Field Income Statement For the Entire Harvesting Season Revenue Less: 243 Seed Expense Fertilizer Expense Depreciation Expense - Plow Depreciation Expense - Ox 20 2 3 4

Profit

(29) 214

Ivan's Field Balance Sheet Statement For the End of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox TOTAL ASSETS

223 100 0 0 36 359

LIABILITIES Accounts Payable TOTAL LIABILITIES EQUITY Capital, End TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

3 3

356 356 359

Ivan's Field Statement of Changes in Equity For the End of the Season Capital, Beginning Add: Profit Total Less: Withdrawals Capital, End 162 214 376 (20) 356

FREDERICK’S PLOT Frederick's Field Balance Sheet Statement For the Beginning of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox TOTAL ASSETS

0 50 10 1 40 101

TOTAL LIABILITIES EQUITY Capital, Beginning TOTAL EQUITY TOTAL LIABILITIES AND EQUITY

0

101 101 101

Frederick's Field Income Statement For the Entire Harvesting Season Revenue Less: 138 Seed Expense Fertilizer Expense Depreciation Expense - Plow Depreciation Expense - Ox 10 1 1 4

Profit

(16) 122

Frederick's Field Statement of Changes in Equity For the End of the Season Capital, Beginning Add: Profit Total Less: Withdrawals Capital, End 101 122 223 (30) 193

Frederick's Field Balance Sheet Statement For the End of the Season ASSETS Bushels of Wheat Land Seeds Fertilizer Ox Plow TOTAL ASSETS

105 50 0 0 36 2 193

LIABILITIES Accounts Payable TOTAL LIABILITIES EQUITY Capital, End TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 2. Which peasant was the better farmer?

0 0

193 193 193

Answer: Frederick is the better farmer because he produced 12.2 Bushels of Wheat per acre (122 BW/10 acres of land), has saved two more season for the plow and left no liabilities. Ivan produced 10. 7 Bushels of Wheat (214 BW/20 acres of land) which is 12.30% less than Fredericks.

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