initiate new wine bread. Amphlett and Ferris also decided that if their first store were successful,...

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initiate new wine bread. Amphlett and Ferris also decided that if their first store were successful, they would open addi- tional stores in Bellevue and Issaquah, Washington, and they would consider supplying large retail chains such as Costco Wholesale Corporation. Initial Business Setup Establishing the new business would require outside financing. Through Ferris's work in the controller's office at Tully's Coffee, he had developed an excellent working relationship with Al Ross at Puget Sound Bank, who tentatively agreed that a bank loan of up to $1 million at an interest of 6% per year would be possible. But Ross indicated that the bank's loan committee would want, along with other documents, a business plan including a complete set of projected financial statements for the first year of operations, with an income statement, statement of cash flows, and a balance sheet. Based on market research, they decided to set the price of Aussie Pies at $3.25 per pie. Although they had initially contemplated renting the store, equipment, and fixtures, they now decided to buy these items. The new facilities with 4,000 square feet of space would enable the business to produce and distribute about 30,000 pies per month under normal operating conditions. After much soul-searching, Ferris decided to quit his job at Tully's Coffee to devote his full-time energies to the new business. To reduce risk, Amphlett decided to maintain her job at Starbucks but work on the business on weekends and at nights. If Aussie Pies were successful enough to expand operations, she too would work on the new business full-time. 4 A barramundi is a popular fish with Australia consumers. It is usually pale grey-green with a coppery shimmer, and can grow to a maximum length of 2 m (6 ft. 7 in.), weighing up to 60 kg. (130 lb); specimens weighing 5-6 kg. (11-13 lb.) are more commonly seen, however (http://en.wikipedia.org/wiki/Barramundi). 5 Bodalla cheese, a popular cheese with Australian consumers, is made in Bodalla, Australia. 2 A01-06-0013 As a result of guidelines established by the company's legal advisors, Amphlett and Ferris decided that additional events would need to occur in the start-up phase (by December 31, 2005) of the busi- ness as follows: 1. Amphlett and Ferris would contribute the jointly owned land at Pike Place Market valued at $100,000, for which they would each receive 50,000 shares of common stock. 2. A $700,000 bank loan would be signed with Puget Sound Bank and the cash disbursed to Aussie Pies immediately. 3. Cash fees for attorneys and incorporation costs to establish Aussie Pies, Inc. during the start-up phase would amount to $60,000. 4. Aussie Pies would initially purchase $20,000 of inventory consisting of meat, flour, spices, butter, and customer packaging for cash. 5. The company would spend $200,000 in cash to construct a store building on the land they had acquired at Pike Place Market. 6. The company would also spend $140,000 in cash to purchase cooking equipment and outfit the store with furniture and fixtures. 7. Amphlett and Ferris agreed that the former would retain the title of President and Chief Executive Officer and that the latter would be the Chief Operating Officer. Both would be members of the Board of Directors. Key Events in the First Year In order to comply with the bank's request for projected financial statements, Amphlett and Ferris compiled a list of the important events that would likely occur during the first year of operations. The list included the following events: 1. Based on market research, Amphlett and Ferris estimated that meat pie sales in the first year would be about 28,000 pies per month or 336,000 pies per year at $3.25 per pie. Since some commercial customers had approached the entrepreneurial couple about supplying their retail outlets, it was estimated that 50% of sales revenue would be on credit terms of 30-60 days. The remaining amount uncollected at the end of the year was projected to be $370,000. 2. Additional purchases of inventory were estimated to be $410,000 during the year. All purchases would be on credit terms of 30-60 days. It was estimated that the unpaid balance of this credit purchase at the end of the year would be $90,000. 3. The loan agreement on the bank loan called for repayment over 10 years at the end of each year. Interest would also have to be paid. 4. Payroll expenses (including benefits) for employees including those involved in making and selling the pies were estimated to require cash outlays of $100,000 during the year. Selling and general administration expenses of $150,000 were also expected to require cash outlays during the first year. 5. Additional equipment to expand future production was estimated to require a cash outlay of $30,000. 6. A physical inventory would be necessary to determine the remaining inventory on hand so that accurate measurement of the cost of making the meat pies could be determined. The company's policy was to sell only fresh pies, so the ending inventory was expected to be zero. 7. Depreciation for the year was determined to be as follows: $17,000 for equipment, furniture, fixtures-based on an estimated life of 10 years. $10,000 for buildings-based on an expected life of 20 years. Per 8. The company's start-up costs would be written off over two years. 9. Amphlett and Ferris issued 100,000 shares to a passive outside investor for $2 per share to finance future expansion plans. 10. A friend of the family gave one of the company's meat pies to a famous gourmet cuisine personality, Julia Child, who showed up on the opening day and wrote a rave review in the Seattle Times the next day. Based on this review, Amphlett and Ferris thought their shares would now be worth consider- ably more and that this should be reflected in the proforma financial statements. 11. The state of Washington has no state income taxes. Federal income taxes were estimated to be only $110,000 with 60% being paid by the end of the year. 12. On the last day of the year, Amphlett and Ferris decided to acquire $80,000 of inventory in antici- pation of next year's production. Credit terms were 30-60 days. 13. Amphlett and Ferris expected to declare and pay cash dividends of $120,000. KEY This assignment may be completed individually OR in groups not to exceed 4 persons. The due date is Friday September 29th at 11:59 pm. Submission of the assignment should be on moodle in the assignment folder designated for that purpose. The document submitted should be Word (any version). Assignment Description: The assignment is to solve the case entitled: Aussie Pies Inc. (B) (in the casebook). On page 2 it contains the following statement in the third to last paragraph: "But Ross indicated that the bank's loan committee would want along with other documents a business plan including a complete set of projected financial statements for the first year of operations with an income statement, statement of cash flows and a balance sheet." Please ignore those questions and instead answer the following required for your assignment. Required: a) On page 3, transactions #1-6 (Initial business set-up section) contain all of the initial arrangements required prior to starting the first year of business. Prepare a spreadsheet in good form (as shown during lecture 1 in the class notes and as done for the in-class problem) to record those transactions in the spreadsheet, and prepare the journal entries that would have been done also. 1) Prepare the balance sheet using the balances from the spreadsheet in 4). Hint: The headings in the spreadsheet for part a) should contain the following account titles across the first row: Assets: Cash Inventory Equipment, furniture, fixtures Building Land 4) Intangibles (Start-up costs) Liabilities: Notes payable Shareholders' Equity: Common Stocked of Aupa 21sble loot prime3 bantal dnenieteemooni 2300 S aban 15/0 b) Prepare a spreadsheet in good form (as shown during lecture 1 in the class notes and as done for the in class problem) and record the transactions #1-13 described on page 3&4 - Key Events in the First Year. (Hint- your starting point (first line) should contain the balances from the starting balance sheet done in a). You do not need to do the journal entries for these transactions 1-13. The headings for this spreadsheet should contain the following account titles across the first row: Assets: Cash Accounts Receivable Inventory Equipment, furniture, fixtures Accumulated depreciation-equipment, furniture, fixtures en Building Accumulated depreciation-building Land nosnigul to 760VICI? AF Intangibles (Start-up costs-net of amortization) Liabilities: Accounts Payable Taxes Payable Notes payable Shareholders' Equity: neugispeed anmunes A o ant svipe of a templaen onli 60910 Br griau josta Cuore (sheq 10 labasiga nos neel abined artisri 193 prsigando a buon wang bestanubpe znolleen bestupen ogong benuper anomena Horosanen 20peq 20 (s Common Stock Retained Earnings Income Statement: Revenues Expenses Hints- transaction #6 refers to finished pies whereas transaction #12 refers to raw material & ingredients needed to produce the pies; for transaction #10, it is NOT allowable to "write-up" the value of common stock issues previously at a lower price) utimul from contul mutimul c) Prepare the projected balance sheet (show current and non-current assets and liabilities), income statement and statement of retained earnings in good form from having completed your spreadsheet in part b). You do not have to prepare a projected statement of cash flows. Compute the following ratios from your financial statements in c) Current ratio i) ii) iii) Return on assets (based on ending asset balance) Return on equity (based on ending equity balance) initiate new wine bread. Amphlett and Ferris also decided that if their first store were successful, they would open addi- tional stores in Bellevue and Issaquah, Washington, and they would consider supplying large retail chains such as Costco Wholesale Corporation. Initial Business Setup Establishing the new business would require outside financing. Through Ferris's work in the controller's office at Tully's Coffee, he had developed an excellent working relationship with Al Ross at Puget Sound Bank, who tentatively agreed that a bank loan of up to $1 million at an interest of 6% per year would be possible. But Ross indicated that the bank's loan committee would want, along with other documents, a business plan including a complete set of projected financial statements for the first year of operations, with an income statement, statement of cash flows, and a balance sheet. Based on market research, they decided to set the price of Aussie Pies at $3.25 per pie. Although they had initially contemplated renting the store, equipment, and fixtures, they now decided to buy these items. The new facilities with 4,000 square feet of space would enable the business to produce and distribute about 30,000 pies per month under normal operating conditions. After much soul-searching, Ferris decided to quit his job at Tully's Coffee to devote his full-time energies to the new business. To reduce risk, Amphlett decided to maintain her job at Starbucks but work on the business on weekends and at nights. If Aussie Pies were successful enough to expand operations, she too would work on the new business full-time. 4 A barramundi is a popular fish with Australia consumers. It is usually pale grey-green with a coppery shimmer, and can grow to a maximum length of 2 m (6 ft. 7 in.), weighing up to 60 kg. (130 lb); specimens weighing 5-6 kg. (11-13 lb.) are more commonly seen, however (http://en.wikipedia.org/wiki/Barramundi). 5 Bodalla cheese, a popular cheese with Australian consumers, is made in Bodalla, Australia. 2 A01-06-0013 As a result of guidelines established by the company's legal advisors, Amphlett and Ferris decided that additional events would need to occur in the start-up phase (by December 31, 2005) of the busi- ness as follows: 1. Amphlett and Ferris would contribute the jointly owned land at Pike Place Market valued at $100,000, for which they would each receive 50,000 shares of common stock. 2. A $700,000 bank loan would be signed with Puget Sound Bank and the cash disbursed to Aussie Pies immediately. 3. Cash fees for attorneys and incorporation costs to establish Aussie Pies, Inc. during the start-up phase would amount to $60,000. 4. Aussie Pies would initially purchase $20,000 of inventory consisting of meat, flour, spices, butter, and customer packaging for cash. 5. The company would spend $200,000 in cash to construct a store building on the land they had acquired at Pike Place Market. 6. The company would also spend $140,000 in cash to purchase cooking equipment and outfit the store with furniture and fixtures. 7. Amphlett and Ferris agreed that the former would retain the title of President and Chief Executive Officer and that the latter would be the Chief Operating Officer. Both would be members of the Board of Directors. Key Events in the First Year In order to comply with the bank's request for projected financial statements, Amphlett and Ferris compiled a list of the important events that would likely occur during the first year of operations. The list included the following events: 1. Based on market research, Amphlett and Ferris estimated that meat pie sales in the first year would be about 28,000 pies per month or 336,000 pies per year at $3.25 per pie. Since some commercial customers had approached the entrepreneurial couple about supplying their retail outlets, it was estimated that 50% of sales revenue would be on credit terms of 30-60 days. The remaining amount uncollected at the end of the year was projected to be $370,000. 2. Additional purchases of inventory were estimated to be $410,000 during the year. All purchases would be on credit terms of 30-60 days. It was estimated that the unpaid balance of this credit purchase at the end of the year would be $90,000. 3. The loan agreement on the bank loan called for repayment over 10 years at the end of each year. Interest would also have to be paid. 4. Payroll expenses (including benefits) for employees including those involved in making and selling the pies were estimated to require cash outlays of $100,000 during the year. Selling and general administration expenses of $150,000 were also expected to require cash outlays during the first year. 5. Additional equipment to expand future production was estimated to require a cash outlay of $30,000. 6. A physical inventory would be necessary to determine the remaining inventory on hand so that accurate measurement of the cost of making the meat pies could be determined. The company's policy was to sell only fresh pies, so the ending inventory was expected to be zero. 7. Depreciation for the year was determined to be as follows: $17,000 for equipment, furniture, fixtures-based on an estimated life of 10 years. $10,000 for buildings-based on an expected life of 20 years. Per 8. The company's start-up costs would be written off over two years. 9. Amphlett and Ferris issued 100,000 shares to a passive outside investor for $2 per share to finance future expansion plans. 10. A friend of the family gave one of the company's meat pies to a famous gourmet cuisine personality, Julia Child, who showed up on the opening day and wrote a rave review in the Seattle Times the next day. Based on this review, Amphlett and Ferris thought their shares would now be worth consider- ably more and that this should be reflected in the proforma financial statements. 11. The state of Washington has no state income taxes. Federal income taxes were estimated to be only $110,000 with 60% being paid by the end of the year. 12. On the last day of the year, Amphlett and Ferris decided to acquire $80,000 of inventory in antici- pation of next year's production. Credit terms were 30-60 days. 13. Amphlett and Ferris expected to declare and pay cash dividends of $120,000. KEY This assignment may be completed individually OR in groups not to exceed 4 persons. The due date is Friday September 29th at 11:59 pm. Submission of the assignment should be on moodle in the assignment folder designated for that purpose. The document submitted should be Word (any version). Assignment Description: The assignment is to solve the case entitled: Aussie Pies Inc. (B) (in the casebook). On page 2 it contains the following statement in the third to last paragraph: "But Ross indicated that the bank's loan committee would want along with other documents a business plan including a complete set of projected financial statements for the first year of operations with an income statement, statement of cash flows and a balance sheet." Please ignore those questions and instead answer the following required for your assignment. Required: a) On page 3, transactions #1-6 (Initial business set-up section) contain all of the initial arrangements required prior to starting the first year of business. Prepare a spreadsheet in good form (as shown during lecture 1 in the class notes and as done for the in-class problem) to record those transactions in the spreadsheet, and prepare the journal entries that would have been done also. 1) Prepare the balance sheet using the balances from the spreadsheet in 4). Hint: The headings in the spreadsheet for part a) should contain the following account titles across the first row: Assets: Cash Inventory Equipment, furniture, fixtures Building Land 4) Intangibles (Start-up costs) Liabilities: Notes payable Shareholders' Equity: Common Stocked of Aupa 21sble loot prime3 bantal dnenieteemooni 2300 S aban 15/0 b) Prepare a spreadsheet in good form (as shown during lecture 1 in the class notes and as done for the in class problem) and record the transactions #1-13 described on page 3&4 - Key Events in the First Year. (Hint- your starting point (first line) should contain the balances from the starting balance sheet done in a). You do not need to do the journal entries for these transactions 1-13. The headings for this spreadsheet should contain the following account titles across the first row: Assets: Cash Accounts Receivable Inventory Equipment, furniture, fixtures Accumulated depreciation-equipment, furniture, fixtures en Building Accumulated depreciation-building Land nosnigul to 760VICI? AF Intangibles (Start-up costs-net of amortization) Liabilities: Accounts Payable Taxes Payable Notes payable Shareholders' Equity: neugispeed anmunes A o ant svipe of a templaen onli 60910 Br griau josta Cuore (sheq 10 labasiga nos neel abined artisri 193 prsigando a buon wang bestanubpe znolleen bestupen ogong benuper anomena Horosanen 20peq 20 (s Common Stock Retained Earnings Income Statement: Revenues Expenses Hints- transaction #6 refers to finished pies whereas transaction #12 refers to raw material & ingredients needed to produce the pies; for transaction #10, it is NOT allowable to "write-up" the value of common stock issues previously at a lower price) utimul from contul mutimul c) Prepare the projected balance sheet (show current and non-current assets and liabilities), income statement and statement of retained earnings in good form from having completed your spreadsheet in part b). You do not have to prepare a projected statement of cash flows. Compute the following ratios from your financial statements in c) Current ratio i) ii) iii) Return on assets (based on ending asset balance) Return on equity (based on ending equity balance)