COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31, 2021 Assets Current assets Cash $86,219 Accounts receivable 3,250 Inventory 17,897 Prepaid expenses 6,300 $113,666 Property, plant, and equipment Furniture and fixtures $12,500 Accumulated depreciation—furniture and fixtures (1,250 ) 11,250 Computer equipment 4,200 Accumulated depreciation—computer equipment (600 ) 3,600 Kitchen equipment 29,000 Accumulated depreciation—kitchen equipment (2,050 ) 26,950 41,800 Total assets $155,466 Liabilities and Stockholders' Equity Current liabilities Accounts payable $5,848 Income tax payable 19,690 Dividends payable 700 Salaries and wages payable 2,250 Interest payable 188 Note payable—current portion 4000 $32,676 Long-term liabilities Note payable—long-term portion 6,000 Total liabilities 38,676 Stockholders' equity Paid-in capital Preferred stock, 2,800 shares issued and outstanding $14,000 Common stock, 25,930 shares issued, 25,180 outstanding 25,930 39,930 Retained earnings 77,360 Total paid-in capital and retained earnings 117,290 Less: Treasury stock (750 common shares) 500 Total stockholders’ equity 116,790 Total liabilities and stockholders' equity $155,466 COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31, 2021 Sales revenue $462,500 Cost of goods sold 231,250 Gross profit 231,250 Operating expenses Salaries and wages expense $92,500 Depreciation expense 3,900 Other operating expenses 35,987 132,387 Income from operations 98,863 Other expenses Interest expense 413 Income before income tax 98,450 Income tax expense 19,690 Net income $78,760 Additional information: Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance. Dividends on preferred stock were $1,400. Since this is the first year of operations and the beginning balances are zero, use the ending balance as the average balance where appropriate. (a) Calculate the following ratios (use ending balances in place of averages, where necessary): (Round current ratio to 2 decimal places, e.g. 1.68:1. Round times interest earned to 0 decimal places, e.g. 125. Round percentages to 1 decimal place, e.g. 12.1% and round other answers to 1 decimal place, e.g. 12.1.) 1. Current ratio enter a number for current ratio rounded to 2 decimal places ___:1 2. Accounts receivable turnover enter a number for accounts receivable turnover in times rounded to 1 decimal place __times 3. Inventory turnover enter a number for inventory turnover in times rounded to 1 decimal place __times 4. Debt to assets enter debt to assets ratio in percentage rounded to 1 decimal place ____% 5. Times interest earned enter a number for times interest earned rounded to 0 decimal places __times 6. Gross profit rate enter gross profit rate in percentage rounded to 1 decimal place ____% 7. Profit margin enter profit margin in percentage rounded to 1 decimal place ____% 8. Asset turnover enter a number for asset turnover in times rounded to 1 decimal place __times 9. Return on assets enter return on assets in percentage rounded to 1 decimal place ____% 10. Return on common stockholders' equity enter return on common stockholders equity in percentage rounded to 1 decimal place ____% Based on your analysis in part (a), do you think a bank would lend Cookie & Coffee Creations Inc. $20,000 to buy the additional equipment? select an option (Yes/No)?
COOKIE & COFFEE CREATIONS INC. Balance Sheet October 31, 2021 Assets Current assets Cash $86,219 Accounts receivable 3,250 Inventory 17,897 Prepaid expenses 6,300 $113,666 Property, plant, and equipment Furniture and fixtures $12,500 Accumulated depreciation—furniture and fixtures (1,250 ) 11,250 Computer equipment 4,200 Accumulated depreciation—computer equipment (600 ) 3,600 Kitchen equipment 29,000 Accumulated depreciation—kitchen equipment (2,050 ) 26,950 41,800 Total assets $155,466 Liabilities and Stockholders' Equity Current liabilities Accounts payable $5,848 Income tax payable 19,690 Dividends payable 700 Salaries and wages payable 2,250 Interest payable 188 Note payable—current portion 4000 $32,676 Long-term liabilities Note payable—long-term portion 6,000 Total liabilities 38,676 Stockholders' equity Paid-in capital Preferred stock, 2,800 shares issued and outstanding $14,000 Common stock, 25,930 shares issued, 25,180 outstanding 25,930 39,930 Retained earnings 77,360 Total paid-in capital and retained earnings 117,290 Less: Treasury stock (750 common shares) 500 Total stockholders’ equity 116,790 Total liabilities and stockholders' equity $155,466 COOKIE & COFFEE CREATIONS INC. Income Statement Year Ended October 31, 2021 Sales revenue $462,500 Cost of goods sold 231,250 Gross profit 231,250 Operating expenses Salaries and wages expense $92,500 Depreciation expense 3,900 Other operating expenses 35,987 132,387 Income from operations 98,863 Other expenses Interest expense 413 Income before income tax 98,450 Income tax expense 19,690 Net income $78,760 Additional information: Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance. Dividends on preferred stock were $1,400. Since this is the first year of operations and the beginning balances are zero, use the ending balance as the average balance where appropriate. (a) Calculate the following ratios (use ending balances in place of averages, where necessary): (Round current ratio to 2 decimal places, e.g. 1.68:1. Round times interest earned to 0 decimal places, e.g. 125. Round percentages to 1 decimal place, e.g. 12.1% and round other answers to 1 decimal place, e.g. 12.1.) 1. Current ratio enter a number for current ratio rounded to 2 decimal places ___:1 2. Accounts receivable turnover enter a number for accounts receivable turnover in times rounded to 1 decimal place __times 3. Inventory turnover enter a number for inventory turnover in times rounded to 1 decimal place __times 4. Debt to assets enter debt to assets ratio in percentage rounded to 1 decimal place ____% 5. Times interest earned enter a number for times interest earned rounded to 0 decimal places __times 6. Gross profit rate enter gross profit rate in percentage rounded to 1 decimal place ____% 7. Profit margin enter profit margin in percentage rounded to 1 decimal place ____% 8. Asset turnover enter a number for asset turnover in times rounded to 1 decimal place __times 9. Return on assets enter return on assets in percentage rounded to 1 decimal place ____% 10. Return on common stockholders' equity enter return on common stockholders equity in percentage rounded to 1 decimal place ____% Based on your analysis in part (a), do you think a bank would lend Cookie & Coffee Creations Inc. $20,000 to buy the additional equipment? select an option (Yes/No)?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter12: Intangibles
Section: Chapter Questions
Problem 10MC
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Concept explainers
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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Question
The balance sheet and income statement of Cookie & Coffee Creations Inc. for its first year of operations, the year ended October 31, 2021, follows.
Additional information:
Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance. Dividends on preferred stock were $1,400. Since this is the first year of operations and the beginning balances are zero, use the ending balance as the average balance where appropriate.
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COOKIE & COFFEE CREATIONS INC.
Balance Sheet October 31, 2021 |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
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Assets
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||||||||||
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Current assets
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||||||||||
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Cash
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$86,219 | |||||||||
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Accounts receivable
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3,250 | |||||||||
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Inventory
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17,897 | |||||||||
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Prepaid expenses
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6,300 |
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$113,666 | |||||||
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Property, plant, and equipment
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||||||||||
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Furniture and fixtures
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$12,500 | |||||||||
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(1,250 | ) | 11,250 | |||||||
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Computer equipment
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4,200 | |||||||||
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Accumulated depreciation—computer equipment
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(600 | ) | 3,600 | |||||||
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Kitchen equipment
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29,000 | |||||||||
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Accumulated depreciation—kitchen equipment
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(2,050 | ) | 26,950 | 41,800 | ||||||
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Total assets
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$155,466 | ||||||||
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Liabilities and
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||||||||||
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Current liabilities
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||||||||||
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Accounts payable
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$5,848 | |||||||||
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Income tax payable
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19,690 | |||||||||
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Dividends payable
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700 | |||||||||
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Salaries and wages payable
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2,250 | |||||||||
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Interest payable
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188 | |||||||||
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Note payable—current portion
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4000 |
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$32,676 | |||||||
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Long-term liabilities
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||||||||||
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Note payable—long-term portion
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6,000 | |||||||||
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Total liabilities
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38,676 | |||||||||
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Stockholders' equity
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||||||||||
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Paid-in capital
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$14,000 | |||||||||
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Common stock, 25,930 shares issued, 25,180 outstanding
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25,930 | 39,930 | ||||||||
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77,360 |
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Total paid-in capital and retained earnings
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117,290 | |||||||||
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Less:
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500 | |||||||||
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Total stockholders’ equity
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116,790 | |||||||||
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Total liabilities and stockholders' equity
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$155,466 |
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COOKIE & COFFEE CREATIONS INC.
Income Statement Year Ended October 31, 2021 |
||||
|---|---|---|---|---|
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Sales revenue
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$462,500 | |||
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Cost of goods sold
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231,250 | |||
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Gross profit
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231,250 | |||
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Operating expenses
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||||
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Salaries and wages expense
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$92,500 | |||
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Depreciation expense
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3,900 | |||
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Other operating expenses
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35,987 | 132,387 | ||
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Income from operations
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98,863 | |||
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Other expenses
|
||||
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Interest expense
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413 | |||
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Income before income tax
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98,450 | |||
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Income tax expense
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19,690 | |||
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Net income
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$78,760 |
Additional information:
Natalie and Curtis are thinking about borrowing an additional $20,000 to buy more kitchen equipment. The loan would be repaid over a 4-year period. The terms of the loan provide for equal semiannual installment payments of $2,500 on May 1 and November 1 of each year, plus interest of 5% on the outstanding balance. Dividends on preferred stock were $1,400. Since this is the first year of operations and the beginning balances are zero, use the ending balance as the average balance where appropriate.
(a) Calculate the following ratios (use ending balances in place of averages, where necessary): (Round current ratio to 2 decimal places, e.g. 1.68:1. Round times interest earned to 0 decimal places, e.g. 125. Round percentages to 1 decimal place, e.g. 12.1% and round other answers to 1 decimal place, e.g. 12.1.)
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1.
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Current ratio
|
enter a number for current ratio rounded to 2 decimal places | ___:1 | ||
|---|---|---|---|---|---|
|
2.
|
Accounts receivable turnover
|
enter a number for accounts receivable turnover in times rounded to 1 decimal place | __times | ||
|
3.
|
Inventory turnover
|
enter a number for inventory turnover in times rounded to 1 decimal place | __times | ||
|
4.
|
Debt to assets
|
enter debt to assets ratio in percentage rounded to 1 decimal place | ____% | ||
|
5.
|
Times interest earned
|
enter a number for times interest earned rounded to 0 decimal places | __times | ||
|
6.
|
Gross profit rate
|
enter gross profit rate in percentage rounded to 1 decimal place | ____% | ||
|
7.
|
Profit margin
|
enter profit margin in percentage rounded to 1 decimal place | ____% | ||
|
8.
|
Asset turnover
|
enter a number for asset turnover in times rounded to 1 decimal place | __times | ||
|
9.
|
Return on assets
|
enter return on assets in percentage rounded to 1 decimal place | ____% | ||
|
10.
|
Return on common stockholders' equity
|
enter return on common stockholders equity in percentage rounded to 1 decimal place | ____% |
Based on your analysis in part (a), do you think a bank would lend Cookie & Coffee Creations Inc. $20,000 to buy the additional equipment?
select an option (Yes/No)?
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