In mid-2013, Mr & Mrs Richard Bingham decided to go into the restaurant business. Mr Bingham was
Question:
In mid-2013, Mr & Mrs Richard Bingham decided to go into the restaurant business. Mr Bingham was dissatisfied with his job as cook in a restaurant where he earned $9.75 an hour. In July 2013, the Binghams found a business that seemed to be what they wanted. This was the Payson Lunch, a lunch counter located in Fisher's Department Store downtown. The Payson Lunch was operated under a lease with the department store; only the equipment was actually the property of the operator of the lunchroom. The equipment was old, but Mr Bingham thought that it was in fairly good condition.
The couple opened negotiations with a current lunchroom operator and quickly reached an arrangement to take over the lease and equipment on September 1, and to pay the operator a price of $10,300. Of this price, Mr Bingham estimated that $4,600 represented the fair value of the equipment. The lease expired on August 31, 2014, and was renewable for three years if Fisher's consented. Under the terms of the lease, Fisher's furnished space, heat, light and water, and the operators (ie, the Binghams) paid Fisher's 15% of gross receipts as rent.
The Binghams paid the $10,300 from their personal savings account and also transferred $5,150 to a checking account that they opened in the name of Payson Lunch.
Shortly after they started operations, the cooking range broke down. The Binghams thereupon sold the range for $400 (which was approximately its estimated value as a part of the $4,600) and purchased a new range for $4,000. It was installed immediately, and they paid $600 for its installation. The coffee urn also broke down, but Mr Bingham was able to repair it himself by working 16 hours one Sunday.
Early in 2014, the Bingham,s called in a firm that specialized in making out reports for small businesses and requested financial statements for Payson Lunch for the period ended December 31, 2013. From the cash register and checkbook, they had the following figures:
Cash receipts
Cash receipts from customers
$33,165
Sale of cooking range
400
Total cash receipts
$33,565
Cash disbursements
Food and supplies
$14,275
City restaurant license, valid Sept 1, 2013 to Aug 31,
2014
225
15% rent paid to Fisher's for Sept, Oct & Nov
3,460
New cooking range
4,000
Installation of cooking range
600
Other operating expenses
90
Withdrawals fr personal use
3,800
Total cash disbursement
$26,450
Before going home on December 31, the Binghams had estimated the value of food and supplies then on hand to be about $750 at cost. Early in January, they paid two bills: the December meat bill of $890 and the December rent of $1,515.
The Binghams also explained to the accountant that the cash receipts of $33,165 included $3,850 received from the sale of 140 "coupon books" at $27.50 each. Each book contained coupons with a face value of $30, which could be used to pay for meals. As of December 31, coupons with a face value of $2,700 had been used to pay for meals; therefore, coupons with a face value of $1,500 were still outstanding.
Questions
1. Prepare a balance sheet as of December 31, 2013, and an income statement and cash flow statement for the four-month period ending December 31, 2002. Explain briefly your treatment of the coupon books and of anything else you believe needs comment.
2. Comment briefly on the significant information revealed by your financial statements.
Expert Answer:
Mr Mrs Richard Bingham operator a price of 10300 Of this price4600 represented th... View the full answer
