Case $1($Chapter $01)$Student Handout Prepared By : Harpreet KaurPrepared For : Melissa AppletonStudent No$.100476680$Subject: Case $1$ The Purpose and Use of Financial StatementsIndustrial Maids Service Ltd$.($IMS$)$ is a corporation based in Sarnia, Ontario that focuses on cleaning commercial properties which is a very competitive business. Although IMS tries to recruit highly trained employees, it is not able to pay a very high hourly wage. Cleaning services are charged to clients by the hour and the average rate is $$22$ per hour. Some of the cleaning done by this company is done with larger equipment that is repaired by the company. The average employee will work an entire shift at one clients premises.Prestige Cleaning Services Inc. $($PCS$)$ also operates a cleaning service in Sarnia but this company focuses on residential cleaning and targets large homes in high$-$income areas. The company is owned by a former NHL star who is very effective at securing cleaning contracts. Most of the cleaning work done by this company occurs during the day and the company is able to attract experienced cleaning staff and pay them a higher wage. Cleaning services are charged to clients by the hour and the average rate is $$30$ per hour. The equipment used by this company is inexpensive. Most employees will clean two or three houses during a single shift so the company owns several vehicles.Listed below are condensed statements of income of the two corporations:IMSPCSService revenue$$1,320,000$ $$900,000$ Salaries expense$900,000480,000$ Rent expense$42,00023,000$ Other operating expenses$4,00014,000$ Interest expense $25,00013,000$ Income before income tax$349,000370,000$ Income tax expense $87,25092,500$ Net income$ $261,750$ $$277,500$ PART ONE:$($a$)$How many hours of cleaning service did each company provide to its clients?Answer: Total Hours $=$ Service revenue$/$Average rateSALARY REVENUE IMS$13,20000$PCS$90,0000$Rate$$22$$$30$HOURS$60,00030,000($b$)$What is the average rate of pay per hour that each company pays its employees?Answer: IMSPCSSALARY$/$EXPENSE$90,000048,0000$Hours$60,00030,000$Rate$$15$$$16($c$)$Which company do you think uses larger facilities? Why do you think this is$?$Answer:According to the provided information IMS is likely to use larger facilities. Following are the reasons:They Clean commercial properties which Requires Larger equipment for instant, Large Vacuums, and floor ScrubbersWhereas PCS focus more on residential smaller House, and they need smaller size appliances. Case $1($Chapter $01)$Student Handout The Purpose and Use of Financial Statements$($d$)$Why does PCS likely have higher other operating expenses than IMS?$($e$)$ One of the companies financed its start up by taking out a higher amount of bank loan than the other company. Which company do you think this was? Both companies are charged the same rate of interest by their banks.PART TWO:$($f$)$ What is the most significant factor that makes PCS more profitable than IMS?