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Xcocococ

Case 1-1
Case 1-1
Prepared by
Chien-Chih Liu
for Professor C. E. Reese
in partial fulfillment of the Requirements for
ACC 770 – Managerial Accounting
School of Business/ Graduate studies
St. Thomas University
Miami Gardens, FL
Term A2/ spring, 2011
`March 19, 2011
Table of Contents
Issues.............................................................................................................
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Facts...............................................................................................................
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Analysis..........................................................................................................
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Conclusions/solutions/recommendations.......................................................
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Issues:
1.

2010. April 2 edition advertising $150. Carmen deposited the cousins' $10. Carmen sends the financial report covering the four-month period from March 1 to June 30 to her cousins. through June 30? b.200. How would you report on the three-month operations of Ribbons an' Bows. paid on the last day of the month. Carmen's uncle help him formally incorporated her business and waive her legal fee. 2. 2010? 3. Was the company profitable? (Ignore income taxes. The agreement was for an 18-month period beginning April 1. 6.) c.a.000 for one year at a 6 percent interest rate.. Carmen purchased a used commercial sewing machine for $1. Carmen reviewed the activity in the company's cash bank account. She paid the following payment: the last two months’ rent $1. and used computer purchase $2. It includes customers had .000. which Carmen paid out of the company bank account at the signing. 2010.000 loan and her $1000 equity distribution. On March 31. Facts 1. Two of her cousins agreed to loan the business $10. 3. How should you report the financial condition of the business on June 30. opening the merchandise inventory $3. Inc. Do you believe Carmen's first three months of operation could be characterized as "successful"? Explain your answer. store supplies $100. On March 1.300. On March. Why did its cash in the bank decline during the three-month operating period? 2. 5. The agreement called for a prepayment of the last two months' rent. On July.800 cash. cash register deposit $250. On May 1. She also signed an agreement to rent store space for $600 per month. 4. Carmen Diaz decided to open a small ribbon shop.

A part-time employee had been paid $1.400) cash for ribbons and accessories and credit sales ($320). Part-time employee expenses ($1.100 equals cost of sales $2. Before staring her business. Customer has paid ($7.510 but was still owed $90 for work performance. Carmen estimated the June 30 merchandise inventory on hand had cost $4.900 had been delivered.100.390. The commercial sewing machine purchased led to a $1. And she prepared to get some compensation in July if cash was available. Carmen was concerned about how she should reflect the following in her financial report which are no interest had been paid on the cousin's loan and the free legal performance by her uncle and the free cash register provided by the local credit-card charge processor. but she was still owed $320 for ribbon agreements for a large wedding delivered to the customer. Rent expense is $1. Cost of sales is derived from the following equation: beginning merchandise inventory ($3. The benefit of the asset expired so the asset became an expense. she had worked for $1.300) plus purchases ($2. 9.paid $7.900) less ending merchandise inventory $4. Inventory replenishments costing $2. Analysis 1a.800 asset being recorded. 7. Carmen had not paid herself as salary or dividends during the four months of operations. Rent for the three-month period had been paid in cash the end of each month.600) is the sum of cash paid ($1510) plus amount owed ($90).000. The asset's benefit was partly consumed during May and June resulting in a $60 depreciation charge.800 of $600 per month times three months.100. 8.400 cash for ribbons and accessories. She was puzzled by the fact that the cash in the company's June 30 bank account was $3. The small opening office supplies inventory was nearly all gone.300 a month as a cashier in a local grocery store. The prepaid advertising ($150) was run by the local paper on April2. Some of the future benefits of the computer and related software asset were consumed during the three . She estimated supplies costing $20 had not been used. which was less than the April 1 balance of $4.

Thus.000*0.6*4/12)=200.480 before taxes.Computer | (250) | Depreciation . 2010 Sales | $7. Why did its cash in the bank decline during the three-month operating period? Figure 2 Ribbon an’ Bows Cash Flows Analysis for the Period . ($10. 1c. Figure 1 Ribbons an’ Bows Income Statement For the period April 1 to June 30.720 | Cost of Sales | (2.800) | Office Supplies | (80) | Depreciation . The cousin’s loan is $10.480 | 1b Was the company profitable? According to Exhibit 1. Thus. the company was profitable. the company earned $1.620 | Employee Wages | (1.Sewing Machine | (60) | Interest | (200) | Advertising | (150) | Profit Before Taxes | $1.100) | Gross Margin | $5.month period. A $250 depreciation charge must be recognized. Carman has rented the cousin’s money for four month.600) | Rent | (1.000. the interest for four month is $200.

2.200 | Owner’s Equity | | . How would you report the financial condition of the business on June 30.000 | Sales | 7. more inventories were brought for cash ($2.290 | Prepaid Rent | 1.400 | Wages | -1.April 1 to June 30.800 while the related depreciation charge only reduced income by $60.390 | According to income statement.000 | Supplies | 20 | | $10. the main reasons why the cash balance declined during the three-month operating period are the commercial sewing machine purchase reduced cash by $1.900 | Sewing Machine | -1.510 | Rent | -1800 | Merchandise Inventory | -2. That is.800 | Ending Cash | $3. 2010 Assets | | Liabilities | | Cash | $3.900) than the cost of goods sale ($2100). Ending inventory was higher than beginning inventory and the increase was paid with cash. 2010? Ribbons an’ Bows Balance Sheet as of June 30.390 | Wages Owed | $90 | Accounts Receivable | 320 | Interest Owed | 200 | Merchandise Inventory | 4. 2010 Beginning Cash | $4.100 | Cousins’ Loan | 10.

The income statement shows that the company is profitable with the sales totaling $7.480 | Cash Register Deposit | 250 | | $2. The cash flow statement shows that the cash ending balance is less than the beginning balance and that is because Carmen decided to expand her business.Computer | 1. The balance sheet on the other hand shows that company’s debt is not excessive.770 | | $12. There is still some potential for Ribbon an' Bows Inc. But. I believe Carman's business is "successful". within its three months of the operation its shows that the company has a good start off. which has reduced the cash. They should have more effective market plan and use advertisement to promote their service .750 | Carmen’s Equity | $1. increasing their profit. Conclusions (solution and/or recommendation: issue) Ribbons an’ Bows Inc..480 | Total | $12.770 | 3.000 | Sewing Machine | 1. Carman should pay herself some meaningful compensation and repay the cousin's loan at the end of the year. in order to do better over the rest of the year..720. Do you believe Carmen's first three months of operation could be characterized as "successful"? Explain your answer.740 | Earnings | 1.