Doug returned to his apartment after meeting with his accounting professor from his sophomore year. He was working on a business plan to present to his parents and knew that he needed to provide his parents with a financial picture of how his online business had been performing so far. He hadn’t decided what type of business to open yet, but he was thinking about expanding his online eBay business and perhaps selling his snowboards at ski swaps within the Pacific Northwest. 

His accounting professor had reminded him that income statements and balance sheets were good tools for showing both the profitability and the state of his business. Doug settled down to construct financial statements beginning last November 15, 2020, when he first started selling and buying snowboards online. To kick off his business, Doug’s parents gave him $250, his brother loaned him$250, and Doug himself put$400into the business. His parents did not want to be repaid the $250but instead wanted to own part of Doug’s business. His brother kindly told him he would not charge him interest. Luckily, Doug had kept all of his receipts. 

When he first started selling snowboards last November, he started by purchasing 3 snowboards for an average cost per snowboard of $143.97. He felt that he needed to get some experience buying and selling snowboards before spending more money. To tune up the snowboards, on Amazon.com, he purchased a waxing kit for $143.21 and tools for $82.34. He expected to be able to use the waxing kit and tools for 2years. Before selling the snowboards, Doug tried each of them out on the slopes so he could be sure to accurately describe the snowboards to his customers. He wanted to build a reputation of being an expert in snowboards and a trustworthy business owner. He sold the 3 snowboards throughout November and the beginning of December for $154.95, $234.95, and $329.95. His website charges him a $0.30 listing fee for each item sold, plus a 12.55% transaction fee. 

At the end of December, Doug felt okay about the profit he made on the first 3 snowboards, but he realized that his website fee took a big portion out of his profit. Keeping this in mind, he did a better job lowering his bids on the second set of snowboards he purchased and sold them for a higher price. He also noticed he made more profit on the medium-priced snowboard than the lowest and highest-priced snowboards, so he decided to purchase 6snowboards with the intention of charging a medium price, and then experimented with buying a more expensive snowboard that he would sell at a higher price. He also started fine-tuning how he described the snowboards when selling them to ensure each snowboard was described with some unique benefits.

Doug purchased 7more snowboards during the middle of December. The average cost of the 6medium-tier snowboards was $112.34each and the cost of higher-tier snowboards was $156.89. To increase the number of buyers who considered his postings, Doug decided to invest in advertising. He paid $60 to advertise his snowboards during December, January, and February. He sold 3ofthe snowboards for an average price per snowboard of $234.95 and 1 of the snowboard at $329.95.Unfortunately, he was unable to sell 3of the medium-tier snowboards. He knew it was a little risky buying the second set of snowboards during the middle of December since ski season usually only lasted through February or March. Next year, he’d be sure to buy all of his inventory by October or November. As he sat down to create his income statement and balance sheet, he felt pretty good. He had money in his bank account and he was making a business out of buying and selling snowboards! He wondered if his parents and brother would agree to help him expand when they reviewed his financial statements.

1.Create an income statement for the first (partial) year of Doug’s Snowboards business (from November 15, 2020 to August 15, 2021).

2.Create a balance sheet for the period ending August 15, 2021.

3.What is the difference between the money that Doug’s mom and brother each gave him for the business?

4.If you were Doug, would you continue your online snowboarding business?

Answer rating: 100% (QA)

Working Notes 1 Sales Revenue for Doug for the period from November 15 2020 to August 15 2021 Gross Sales Realisation 15495 23495 32995 23495 3 32995 175465 Less Transaction Fees paid on Website 1255 ... View the full answer