In March 2019, Rebecca Rousseau identified an excellent business opportunity while she was a first-year Masters...

 

                                                                                                       
 

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In March 2019, Rebecca Rousseau identified an excellent business opportunity while she was a first-year Masters student at ESCP Europe. She read a story in the European Management Journal about how artificial intelligence (A.I.) is changing robotics and smart home/business automation products. She realized that she could set up a profitable business that rented out A.I.- driven robot vacuum cleaners to small and medium-sized companies to clean their facilities at low cost. Rebecca also had the idea of selling smaller versions of the robot vacuum cleaners to private households in a local store. Rebecca prepared a business plan and approached a fellow student, Bernard Berus, who she believed would invest in this new venture (and who's family had a substantial trust fund). Due to his myriad of other investments, and his heavy course load, Bernard agreed to invest as a silent partner and allow Rebecca to run the business. On April 1, 2019, Bernard decided to invest €200,000 and Rebecca put up €50,000 to purchase a total of 25,000 shares in the new company, which was called Robot Cleaning Services SA. The par value of the shares was €10.00 (1). Lacking the funds for her initial investment, Rebecca borrowed €50,000 from her bank using her parent's house as collateral. (2). On April 2, Rebecca hired a lawyer to have the business incorporated. Because this was a fairly simple organization, the legal fees were only €3,900 (3). Then, Rebecca set out to find a building near Paris's biggest start-up campus, Station F, in the 13th arrondissement to house the business. In this area, she was certain to find high-skilled programmers and important partners for A.I. developments. She found an abandoned pizza place at Rue Dunois that she was able to buy for €155,000 on April 7 (it is not the best neighbourhood). The building was old and needed renovation work. The purchase documents allocated €103,000 to the land and only €52,000 to the building, due to its age and run-down appearance. A mortgage of €124,000 was secured from Imperial Bank for the purchase, with the remaining €31,000 paid in cash (4). Rebecca felt that some renovation work would extend the life of the building to 25 years (with an expected salvage value of €10,000). She ordered the renovation work, costing €33,000, to begin immediately. The work was completed on May 25, at which time she paid in cash the amount owed for the renovations (5). While her classmates were headed to La Défense or to London for their summer internships, Rebecca prepared to open her new business. She phoned a number of vacuum cleaner vendors until she found one that was willing to give her a volume discount. However, because her company was a new business, the vendor required her to pay the full balance in cash immediately. On June 2, Rebecca purchased 240 smart vacuum cleaners at an average cost of €500 per unit. The innovation in the smart vacuum cleaner industry is so rapid that Rebecca felt the units would only last for two years, at which time they would have no remaining value (6). On June 15, Rebecca ordered 200 smaller versions of the robot vacuum cleaner for €100 per unit to be delivered on June 30 in order to sell them at her local store. Rebecca was able to purchase the inventory "on account", which meant she had up to 30 days after delivery to pay the supplier (7). With the business set to open the next day, Rebecca was very busy on June 30. First, she paid €2,100 for a three-year site license to use A.I. room scanning software in the vacuum cleaners (8). Next, Rebecca signed a contract with a local advertising agency to provide various forms of advertising for a period of one year. She paid €8,000 upfront for advertising through June 2020 (9). Then, Rebecca needed cash to make a payment on the Imperial Bank loan that funded her purchase of Robot Cleaning Services stock. She borrowed €5,000 from Robot Cleaning Services at 10% interest, with the principal and interest due in a lump sum on June 30, 2020 (10). Rebecca also hired two employees, Linda Carlyle and Charlotte Cafferly, to run the shop. They signed employment contracts promising each salaries of €32,000 per year (11). Robot Cleaning Services opened for business on July 1, 2019. On July 31, Rebecca paid the supplier the €20,000 it was owed (12). In a search for new revenue opportunities, on December 1, Rebecca initiated an experimental unlimited rental arrangement with Shiva Cleaning Services, an established cleaning company in Paris. Under this arrangement, Shiva paid Robot Cleaning Services €1,200 cash upfront for unlimited rentals over the next year (13). For the six months ended December 31, 2019, rental revenues on the vacuum cleaners totalled €124,300. Due to the nature of the business, most of the rentals were cash sales. However, as an initiative to reward repeat customers, Rebecca allowed a select number of frequent renters to charge their rentals and be billed later. As of December 31, 2019, €4,200 was outstanding under this plan (14). During the period between July 1 and December 31, Rebecca purchased €40,000 of the smaller vacuum cleaners, of which €38,000 had been paid in cash and €2,000 was still owed at December 31 (15). Robot Cleaning Services recorded sales of the smaller vacuum cleaners to private households totalling €35,000 this period, all received in cash (16). The original cost of these inventories was €30,000 (17). Finally, Robot Cleaning Service's two employees were paid wages of €32,000 during this six-month period and Rebecca drew a salary of €50,000 (18). When Rebecca called her accountant on December 31, 2019, she was pleased to tell him that the company had € 63,300 in cash. She wanted to go out to celebrate, but the accountant reminded her that she needed to stay in to do adjusting entries. For example, even though it wasn't paid in cash, accrued interest on the mortgage was €4,900 (19). Finally, after prepaid advertising account (20), notes receivable account (21), and unearned revenue account (22), there would be income tax expense of €630 (Rebecca was also confused by this because she did not do her taxes until April) (23). The accountant also reminded her that they would need to prepare a set of financial statements to provide Bernard, as well as Imperial Bank and any prospective investors, a relevant and reliable picture of Robot Cleaning Services's financial position and results of operations. 1. Post all those 23 transactions to the T-accounts, when relevant. 2. Prepare the Income Statement for the year ended December 31, 2019 3. Prepare the Balance Sheet for December 31, 2019 In March 2019, Rebecca Rousseau identified an excellent business opportunity while she was a first-year Masters student at ESCP Europe. She read a story in the European Management Journal about how artificial intelligence (A.I.) is changing robotics and smart home/business automation products. She realized that she could set up a profitable business that rented out A.I.- driven robot vacuum cleaners to small and medium-sized companies to clean their facilities at low cost. Rebecca also had the idea of selling smaller versions of the robot vacuum cleaners to private households in a local store. Rebecca prepared a business plan and approached a fellow student, Bernard Berus, who she believed would invest in this new venture (and who's family had a substantial trust fund). Due to his myriad of other investments, and his heavy course load, Bernard agreed to invest as a silent partner and allow Rebecca to run the business. On April 1, 2019, Bernard decided to invest €200,000 and Rebecca put up €50,000 to purchase a total of 25,000 shares in the new company, which was called Robot Cleaning Services SA. The par value of the shares was €10.00 (1). Lacking the funds for her initial investment, Rebecca borrowed €50,000 from her bank using her parent's house as collateral. (2). On April 2, Rebecca hired a lawyer to have the business incorporated. Because this was a fairly simple organization, the legal fees were only €3,900 (3). Then, Rebecca set out to find a building near Paris's biggest start-up campus, Station F, in the 13th arrondissement to house the business. In this area, she was certain to find high-skilled programmers and important partners for A.I. developments. She found an abandoned pizza place at Rue Dunois that she was able to buy for €155,000 on April 7 (it is not the best neighbourhood). The building was old and needed renovation work. The purchase documents allocated €103,000 to the land and only €52,000 to the building, due to its age and run-down appearance. A mortgage of €124,000 was secured from Imperial Bank for the purchase, with the remaining €31,000 paid in cash (4). Rebecca felt that some renovation work would extend the life of the building to 25 years (with an expected salvage value of €10,000). She ordered the renovation work, costing €33,000, to begin immediately. The work was completed on May 25, at which time she paid in cash the amount owed for the renovations (5). While her classmates were headed to La Défense or to London for their summer internships, Rebecca prepared to open her new business. She phoned a number of vacuum cleaner vendors until she found one that was willing to give her a volume discount. However, because her company was a new business, the vendor required her to pay the full balance in cash immediately. On June 2, Rebecca purchased 240 smart vacuum cleaners at an average cost of €500 per unit. The innovation in the smart vacuum cleaner industry is so rapid that Rebecca felt the units would only last for two years, at which time they would have no remaining value (6). On June 15, Rebecca ordered 200 smaller versions of the robot vacuum cleaner for €100 per unit to be delivered on June 30 in order to sell them at her local store. Rebecca was able to purchase the inventory "on account", which meant she had up to 30 days after delivery to pay the supplier (7). With the business set to open the next day, Rebecca was very busy on June 30. First, she paid €2,100 for a three-year site license to use A.I. room scanning software in the vacuum cleaners (8). Next, Rebecca signed a contract with a local advertising agency to provide various forms of advertising for a period of one year. She paid €8,000 upfront for advertising through June 2020 (9). Then, Rebecca needed cash to make a payment on the Imperial Bank loan that funded her purchase of Robot Cleaning Services stock. She borrowed €5,000 from Robot Cleaning Services at 10% interest, with the principal and interest due in a lump sum on June 30, 2020 (10). Rebecca also hired two employees, Linda Carlyle and Charlotte Cafferly, to run the shop. They signed employment contracts promising each salaries of €32,000 per year (11). Robot Cleaning Services opened for business on July 1, 2019. On July 31, Rebecca paid the supplier the €20,000 it was owed (12). In a search for new revenue opportunities, on December 1, Rebecca initiated an experimental unlimited rental arrangement with Shiva Cleaning Services, an established cleaning company in Paris. Under this arrangement, Shiva paid Robot Cleaning Services €1,200 cash upfront for unlimited rentals over the next year (13). For the six months ended December 31, 2019, rental revenues on the vacuum cleaners totalled €124,300. Due to the nature of the business, most of the rentals were cash sales. However, as an initiative to reward repeat customers, Rebecca allowed a select number of frequent renters to charge their rentals and be billed later. As of December 31, 2019, €4,200 was outstanding under this plan (14). During the period between July 1 and December 31, Rebecca purchased €40,000 of the smaller vacuum cleaners, of which €38,000 had been paid in cash and €2,000 was still owed at December 31 (15). Robot Cleaning Services recorded sales of the smaller vacuum cleaners to private households totalling €35,000 this period, all received in cash (16). The original cost of these inventories was €30,000 (17). Finally, Robot Cleaning Service's two employees were paid wages of €32,000 during this six-month period and Rebecca drew a salary of €50,000 (18). When Rebecca called her accountant on December 31, 2019, she was pleased to tell him that the company had € 63,300 in cash. She wanted to go out to celebrate, but the accountant reminded her that she needed to stay in to do adjusting entries. For example, even though it wasn't paid in cash, accrued interest on the mortgage was €4,900 (19). Finally, after prepaid advertising account (20), notes receivable account (21), and unearned revenue account (22), there would be income tax expense of €630 (Rebecca was also confused by this because she did not do her taxes until April) (23). The accountant also reminded her that they would need to prepare a set of financial statements to provide Bernard, as well as Imperial Bank and any prospective investors, a relevant and reliable picture of Robot Cleaning Services's financial position and results of operations. 1. Post all those 23 transactions to the T-accounts, when relevant. 2. Prepare the Income Statement for the year ended December 31, 2019 3. Prepare the Balance Sheet for December 31, 2019

Answer rating: 100% (QA)

Answer 1 Post all those 23 transactions to the Taccounts when relevant Rebecca Rousseau June 2 2019 Purchased 240 smart vacuum cleaners at an average ... View the full answer