Jeremy is setting up a window cleaning business. He set up a limited company - Jeremy...
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Jeremy is setting up a window cleaning business. He set up a limited company - Jeremy Sparkles (JS) Ltd - and sell shares to his family for £50,000. He also receives a loan of £80,000 from his local bank branch which will charge him 20% a year in 4 equal quarterly instalments. With this capital, he rents office space for a downpayment of £12,000 for 3 years (that is a rate of £1,000 per quarter paid up front). He buys a truck for £100,000 which he expects will last for 5 years (20 quarters). Finally he hires two employees, one to work in the office and one window cleaner; both to be paid £20,000 a year. In the 1st quarter, the business is successful and wins 2 large contracts with 2 local companies which each pay £20,000 to clean their respective office windows per quarter. The bills are to be paid within 90 days (1 quarter). In the next quarter, the business continues to go well on the same cleaning contracts. Assume there are no further expenses apart from the wage bill. In addition - to keep things simple - assume no taxes and no dividends (all earnings are retained) and all bills are paid at the end of the 90 day period. a) Construct a cash flow account for the 1st and 2nd quarters (use a direct approach and do not worry too much about the line labels). It is the split into Cash Flow from operations (CFO), Cash flow from Investing (CFI) and Cash Flow from Financing (CFF) that is important. b) Now construct an income account for the same quarters assuming straight line depreciation of the truck over the 20 quarters. Again do not worry too much about the labels though please include an operating and net income line. c) Finally set up a balance sheet for the Jeremy Sparkles Ltd for the end of each of the first two quarters. d) Given time, rewrite the cash flow statement using an indirect approach, i.e. off the income statement. Jeremy is setting up a window cleaning business. He set up a limited company - Jeremy Sparkles (JS) Ltd - and sell shares to his family for £50,000. He also receives a loan of £80,000 from his local bank branch which will charge him 20% a year in 4 equal quarterly instalments. With this capital, he rents office space for a downpayment of £12,000 for 3 years (that is a rate of £1,000 per quarter paid up front). He buys a truck for £100,000 which he expects will last for 5 years (20 quarters). Finally he hires two employees, one to work in the office and one window cleaner; both to be paid £20,000 a year. In the 1st quarter, the business is successful and wins 2 large contracts with 2 local companies which each pay £20,000 to clean their respective office windows per quarter. The bills are to be paid within 90 days (1 quarter). In the next quarter, the business continues to go well on the same cleaning contracts. Assume there are no further expenses apart from the wage bill. In addition - to keep things simple - assume no taxes and no dividends (all earnings are retained) and all bills are paid at the end of the 90 day period. a) Construct a cash flow account for the 1st and 2nd quarters (use a direct approach and do not worry too much about the line labels). It is the split into Cash Flow from operations (CFO), Cash flow from Investing (CFI) and Cash Flow from Financing (CFF) that is important. b) Now construct an income account for the same quarters assuming straight line depreciation of the truck over the 20 quarters. Again do not worry too much about the labels though please include an operating and net income line. c) Finally set up a balance sheet for the Jeremy Sparkles Ltd for the end of each of the first two quarters. d) Given time, rewrite the cash flow statement using an indirect approach, i.e. off the income statement.
Expert Answer:
Answer rating: 100% (QA)
a Cash Flow Account for 1st and 2nd Quarters 1st Quarter Cash Flow from Operations CFO Cash received from the two contracts 40000 2 contracts x 20000 ... View the full answer
Related Book For
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young
Posted Date:
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