17 18 19 4 Bert is planning to start a bicycle shop. He is exploring different options for financing his business, and 5 trying to decide whether he should focus more on bicycle repairs and maintenance, selling new bicycles 6 or a balance of both activities. The following transactions and financial statements examine the financial 7 impact of each option he is considering. 8 Plan A: Primarily debt funded (from creditors); focus on service (repairs & maintenance); requires more 9 investment in equipment and higher salary expense (for more skilled workers.) 10 14 Requirements: 15 1. List the annual transactions for your plan in the Horizontal Transaction Analysis table. (25 points) 16 - Indicate the increase / (decrease) to each account involved in the transaction - Identify the type of cash flow activity for all cash transactions (OA Operating, IA Investing, FA Financing) - Record the Closing Entry for each year by zeroing out the temporary accounts - Calculate the total in each column at the end of the each year. 20 - Permanent account balances will carry forward from one year to the next, so year end totals 21 will accumulate through the years. 23 2. Use the Horizontal Transaction Analysis balances and the details from the transactions each year 24 to create the following Financial Statements for each year (25 points) 26 27 3. Use the financial statements & the transaction details to answer the following questions for your plan 28 Show all calculations to support your response. (10 points) 29 a. What is the remaining balance of Notes Payable at 1/1/Yr. 5? 30 b. If another 25% repayment (of original note) is made in Yr. 5, what is the interest expense for Yr. 5? 31 C. What is the book value of the equipment at 12/31/Yr. 4? 32 d. If the equipment is sold for $5,000 cash on 1/1/Yr. 5, how much gain or (loss) would there be? 33 e. What is the Debt to Assets Ratio (Total Liabilities/Total Assets) for Year 1 & Year 4? 34 f. What is the Equity to Assets Ratio (Total Stockholders Equity / Total Assets) for Year 1 & Year 4? 22 1 Big Picture Project 2021 2 Transactions Plan A 3 1-1 Start Up Funding 4 Sign Note for $60,000 @ 8% 5 Issue Stock for $12,000 6 7 1-2 Purchase Equipment @1/1 8 Purchase a workbench and tools 9 for $40,000 cash; SL Depreciation 10 5 yr. useful life, $0 salvage value 11 12 1-3 Purchase Inventory 13 for $6,000 cash 14 15 1-4 Service & Sales Revenue 16 Service Revenue $39,000 17 Sales Rev $5,400; COGS $2,700 18 19 1-5 Expenses 20 Operating Exp. $23,000 21 Depreciation Exp. = equip. cost x 1/5 22 Interest Expense = 23 Note Pay. yr. end balance x 8% 27 2-1 Purchase Inventory 28 for $3,000 cash 29 30 2-2 Service & Sales Revenue 31 Service Revenue $42,900 32 Sales Rev $5,900; COGS $2,950 33 34 2-3 Expenses 35 Total Operating Exp. $25,000 36 Depreciation Exp. = equip. cost x 1/5 37 Interest Expense = 38 Note Pay.yr. end balance x 8% 39 40 2-4 Dividend Payment 41 Common Stock x 5% 48 Big Picture Project 2021 49 Transactions Plan A 50 3-1 Purchase Inventory 51 for $3,700 cash 52 53 3-2 Sales & Service Revenue 54 Service Revenue $51,500 55 Sales Rev $7,000; COGS $3,500 56 57 3-3 Debt Repayment @ 1/1/yr3 58 1/4 of Original Note 59 60 3-4 Expenses 61 Total Operating Exp. $32,000 62 Depreciation Exp. = equip. cost x 1/5 63 Interest Expense = 64 Note Pay. yr. end balance x 8% 65 66 3-5 Dividend Payment 67 Common Stock x 10% 72 4-1 Purchase Inventory 73 for $5,000 cash 74 75 4-2 Sales & Service Revenue 76 Service Revenue $59,200 77 Sales Rev $8,000; COGS $4,000 78 79 4-3 Debt Repayment @ 1/1/yr4 80 1/4 of Original Note 81 82 4-4 Expenses 83 Total Operating Exp. $24,000 84 Depreciation Exp. = equip. cost x 1/5 85 Interest Expense = 86 Note Pay. yr. end balance x 8% 87 88 4-5 Dividend Payment 89 Common Stock x 10% Income Statement Revenue - Expense 1 Big Picture Project Horizontal Transaction Analysis 2003 2021 2 Balance Sheet 3 Assets Liabilities Year/ Accumulated Cash 4 Trans flow Cash Inventory Equipment Depreciation Notes Payable Year 1 5 Balance 6 1-1 Stockholders Equity Common Retained Stock Earnings 7 1-1 8 1-2 9 1-3 10 1-4 11 1-4 12 1-4 13 1-5 14 1-5 15 1-5 16 Closing 17 Total 18 0 0 0 0 0 0 0 0 0 Year 2 19 Balance 0 0 0 0 0 0 0 0 0 20 2-1 21 2-2 22 2-2 23 2-2 24 2-3 25 2-3 26 2-3 27 2-4 28 Closing 29 Total 0 0 0 0 0 0 0 0 0 31 Big Picture Project Horizontal Transaction Analysis 32 Balance Sheet 33 Assets Liabilities Year/ Cash Accumulated 34 Trans flow Cash Inventory Equipment Depreciation Notes Payable Income Statement Revenue - Expense Stockholders Equity Common Retained Stock Earnings Year 3 35 Balance 0 0 0 0 0 0 0 0 0 36 3-1 37 3-2 38 3-2 39 3-2 40 3-3 41 3-4 42 3-4 43 3-4 44 3-5 45 Closing 46 Total 0 0 0 0 0 0 0 0 0 Year 4 48 Balance 0 0 0 0 0 0 0 0 0 49 4-1 50 4-2 51 4-2 52 4-2 53 4-3 54 4-4 55 4-4 56 4-4 57 4-5 58 Closing 59 Total 0 0 0 0 0 0 0 0 0 Year 4 0 0 0 0 0 12 0 1 Big Picture Project 2003 2021 Proforma Statements for Bert's Bikes 2 Year 1 Year 2 Year 3 3 Income Statement 4 Service Revenue 5 Sales Revenue 6 Total Revenue 0 0 7 Cost of Goods Sold 8 Operating Expenses 9 Depreciation Expense 10 Interest Expense 11 Total Expense 0 0 Net Income 0 0 13 14 Statement of Stockholders Equity 15 Beginning Common Stock 16 Plus: Common Stock Issued 17 Ending Common Stock 0 0 18 Beginning Retained Earnings 19 + Net Income 0 0 20 - Dividends 21 Ending Retained Earnings 0 0 22 Total Stockholders Equity 0 0 23 24 Balance Sheet 25 Assets 26 Cash 27 Inventory 28 Equipment 29 Accumulated Depreciation 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 30 Total Assets 31 Liabilities 32 Notes Payable 33 Total Liabilities 34 Stockholders Equity 35 Common Stock 36 Retained Earnings 37 Total Stockholders Equity 38 Total Liabilities & SE 39 40 41 Net Cashflow from Operating 42 Net Cashflow from Investing 43 Net Cashflow from Financing 44 Net Change in Cash 45 Beginning Cash Balance 46 Ending Cash Balance 0 0 0 0 Statement of Cash Flows 0 0 0 0 0 0 0 3 Part 3. Use the financial statements & the transaction details to answer the 4 following questions for your plan. 5 Show all calculations to support your response. (10 points) 6 a. What is the remaining balance of Notes Payable at 1/1/Yr. 5? 7 8 b. If another 25% repayment of original note) is made on 1/1/ Yr 5, what is the interest expense at 12/31/ Yr5? 9 10 c. What is the book value of the equipment at 12/31/Yr. 4? 11 12 d. If the equipment is sold for $6,500 cash on 1/1/Yr. 5, how much gain or loss) would there be? 13 14 e. What is the Debt to Assets Ratio (Total Liabilities / Total Assets) for Year 4? 15 16 f. What is the Equity to Assets Ratio (Total Stockholders Equity / Total Assets) for Year 4? 17 17 18 19 4 Bert is planning to start a bicycle shop. He is exploring different options for financing his business, and 5 trying to decide whether he should focus more on bicycle repairs and maintenance, selling new bicycles 6 or a balance of both activities. The following transactions and financial statements examine the financial 7 impact of each option he is considering. 8 Plan A: Primarily debt funded (from creditors); focus on service (repairs & maintenance); requires more 9 investment in equipment and higher salary expense (for more skilled workers.) 10 14 Requirements: 15 1. List the annual transactions for your plan in the Horizontal Transaction Analysis table. (25 points) 16 - Indicate the increase / (decrease) to each account involved in the transaction - Identify the type of cash flow activity for all cash transactions (OA Operating, IA Investing, FA Financing) - Record the Closing Entry for each year by zeroing out the temporary accounts - Calculate the total in each column at the end of the each year. 20 - Permanent account balances will carry forward from one year to the next, so year end totals 21 will accumulate through the years. 23 2. Use the Horizontal Transaction Analysis balances and the details from the transactions each year 24 to create the following Financial Statements for each year (25 points) 26 27 3. Use the financial statements & the transaction details to answer the following questions for your plan 28 Show all calculations to support your response. (10 points) 29 a. What is the remaining balance of Notes Payable at 1/1/Yr. 5? 30 b. If another 25% repayment (of original note) is made in Yr. 5, what is the interest expense for Yr. 5? 31 C. What is the book value of the equipment at 12/31/Yr. 4? 32 d. If the equipment is sold for $5,000 cash on 1/1/Yr. 5, how much gain or (loss) would there be? 33 e. What is the Debt to Assets Ratio (Total Liabilities/Total Assets) for Year 1 & Year 4? 34 f. What is the Equity to Assets Ratio (Total Stockholders Equity / Total Assets) for Year 1 & Year 4? 22 1 Big Picture Project 2021 2 Transactions Plan A 3 1-1 Start Up Funding 4 Sign Note for $60,000 @ 8% 5 Issue Stock for $12,000 6 7 1-2 Purchase Equipment @1/1 8 Purchase a workbench and tools 9 for $40,000 cash; SL Depreciation 10 5 yr. useful life, $0 salvage value 11 12 1-3 Purchase Inventory 13 for $6,000 cash 14 15 1-4 Service & Sales Revenue 16 Service Revenue $39,000 17 Sales Rev $5,400; COGS $2,700 18 19 1-5 Expenses 20 Operating Exp. $23,000 21 Depreciation Exp. = equip. cost x 1/5 22 Interest Expense = 23 Note Pay. yr. end balance x 8% 27 2-1 Purchase Inventory 28 for $3,000 cash 29 30 2-2 Service & Sales Revenue 31 Service Revenue $42,900 32 Sales Rev $5,900; COGS $2,950 33 34 2-3 Expenses 35 Total Operating Exp. $25,000 36 Depreciation Exp. = equip. cost x 1/5 37 Interest Expense = 38 Note Pay.yr. end balance x 8% 39 40 2-4 Dividend Payment 41 Common Stock x 5% 48 Big Picture Project 2021 49 Transactions Plan A 50 3-1 Purchase Inventory 51 for $3,700 cash 52 53 3-2 Sales & Service Revenue 54 Service Revenue $51,500 55 Sales Rev $7,000; COGS $3,500 56 57 3-3 Debt Repayment @ 1/1/yr3 58 1/4 of Original Note 59 60 3-4 Expenses 61 Total Operating Exp. $32,000 62 Depreciation Exp. = equip. cost x 1/5 63 Interest Expense = 64 Note Pay. yr. end balance x 8% 65 66 3-5 Dividend Payment 67 Common Stock x 10% 72 4-1 Purchase Inventory 73 for $5,000 cash 74 75 4-2 Sales & Service Revenue 76 Service Revenue $59,200 77 Sales Rev $8,000; COGS $4,000 78 79 4-3 Debt Repayment @ 1/1/yr4 80 1/4 of Original Note 81 82 4-4 Expenses 83 Total Operating Exp. $24,000 84 Depreciation Exp. = equip. cost x 1/5 85 Interest Expense = 86 Note Pay. yr. end balance x 8% 87 88 4-5 Dividend Payment 89 Common Stock x 10% Income Statement Revenue - Expense 1 Big Picture Project Horizontal Transaction Analysis 2003 2021 2 Balance Sheet 3 Assets Liabilities Year/ Accumulated Cash 4 Trans flow Cash Inventory Equipment Depreciation Notes Payable Year 1 5 Balance 6 1-1 Stockholders Equity Common Retained Stock Earnings 7 1-1 8 1-2 9 1-3 10 1-4 11 1-4 12 1-4 13 1-5 14 1-5 15 1-5 16 Closing 17 Total 18 0 0 0 0 0 0 0 0 0 Year 2 19 Balance 0 0 0 0 0 0 0 0 0 20 2-1 21 2-2 22 2-2 23 2-2 24 2-3 25 2-3 26 2-3 27 2-4 28 Closing 29 Total 0 0 0 0 0 0 0 0 0 31 Big Picture Project Horizontal Transaction Analysis 32 Balance Sheet 33 Assets Liabilities Year/ Cash Accumulated 34 Trans flow Cash Inventory Equipment Depreciation Notes Payable Income Statement Revenue - Expense Stockholders Equity Common Retained Stock Earnings Year 3 35 Balance 0 0 0 0 0 0 0 0 0 36 3-1 37 3-2 38 3-2 39 3-2 40 3-3 41 3-4 42 3-4 43 3-4 44 3-5 45 Closing 46 Total 0 0 0 0 0 0 0 0 0 Year 4 48 Balance 0 0 0 0 0 0 0 0 0 49 4-1 50 4-2 51 4-2 52 4-2 53 4-3 54 4-4 55 4-4 56 4-4 57 4-5 58 Closing 59 Total 0 0 0 0 0 0 0 0 0 Year 4 0 0 0 0 0 12 0 1 Big Picture Project 2003 2021 Proforma Statements for Bert's Bikes 2 Year 1 Year 2 Year 3 3 Income Statement 4 Service Revenue 5 Sales Revenue 6 Total Revenue 0 0 7 Cost of Goods Sold 8 Operating Expenses 9 Depreciation Expense 10 Interest Expense 11 Total Expense 0 0 Net Income 0 0 13 14 Statement of Stockholders Equity 15 Beginning Common Stock 16 Plus: Common Stock Issued 17 Ending Common Stock 0 0 18 Beginning Retained Earnings 19 + Net Income 0 0 20 - Dividends 21 Ending Retained Earnings 0 0 22 Total Stockholders Equity 0 0 23 24 Balance Sheet 25 Assets 26 Cash 27 Inventory 28 Equipment 29 Accumulated Depreciation 0 0 0 0 0 0 0 0 0 0 0 O 0 0 0 0 0 30 Total Assets 31 Liabilities 32 Notes Payable 33 Total Liabilities 34 Stockholders Equity 35 Common Stock 36 Retained Earnings 37 Total Stockholders Equity 38 Total Liabilities & SE 39 40 41 Net Cashflow from Operating 42 Net Cashflow from Investing 43 Net Cashflow from Financing 44 Net Change in Cash 45 Beginning Cash Balance 46 Ending Cash Balance 0 0 0 0 Statement of Cash Flows 0 0 0 0 0 0 0 3 Part 3. Use the financial statements & the transaction details to answer the 4 following questions for your plan. 5 Show all calculations to support your response. (10 points) 6 a. What is the remaining balance of Notes Payable at 1/1/Yr. 5? 7 8 b. If another 25% repayment of original note) is made on 1/1/ Yr 5, what is the interest expense at 12/31/ Yr5? 9 10 c. What is the book value of the equipment at 12/31/Yr. 4? 11 12 d. If the equipment is sold for $6,500 cash on 1/1/Yr. 5, how much gain or loss) would there be? 13 14 e. What is the Debt to Assets Ratio (Total Liabilities / Total Assets) for Year 4? 15 16 f. What is the Equity to Assets Ratio (Total Stockholders Equity / Total Assets) for Year 4? 17