Lawn Care Problem Set-Linking the Income Statement and Balance Sheet: A. At the start of the year (12:01AM, January 1) assume the Balance sheet of Lawn Care contains all zeroes. You will see from the previously provided solution set for Lawn Care, the end of the first year's Income Statement, Balance Sheet and Statement of Cash Flows have been completed on the attached worksheets. The first column represents the ORIGINAL BASE CASE for Lawn Care. Using the attached worksheets complete part Band C below. B. Analyze the following scenarios (1-4 below). Each of the four scenarios is completely independent of the other. For each scenario, calculate the INCREMENTAL change (negative or positive incremental dollar change) required to be made for each specific line item impacted on Lawn Care's Income Statement, Balance Sheet and Statement of Cash Flows. Not all of the ORIGINAL BASE CASE line items are impacted by each scenario, and sometimes a line item that is impacted in one part of a financial statement also causes a change to another. In this exercise you are only deriving the incremental dollar change from the ORIGINAL BASE CASE financial statement line items being impacted. C. After completing "B" (which addresses how specific financial accounts change), build 4 new Income Statements, Balance sheets and Statements of Cash Flows which would result if each scenario had been incorporated into the ORIGINAL BASE CASE financial assumptions. If you calculated the net change to each account correctly in B, then the new financial statements should equal the ORIGINAL BASE CASE plus the incremental changes caused by each scenario below. Remember, each scenario is independent of the others, so the starting point for each situation should always be the ORIGINAL BASE CASE Income Statement, Balance sheet, and Statement of Cash Flows from "A" above. 1. Twoadditional Lawnmowers are purchased July 13! for $250each. Each has a S-year straightline depreciation schedule. 2. Instead of taking 30 days to pay, customers take 60 days to pay. However, as a smart owner you have figured out a way to delay wage payment to your lawn mowing staff by 60 days as well. 3. Onluly 15t you take out a bank loan for $2,100. It is used to pay off the equity investment made at the beginning of the year. The loan is for one year and carries and annual interest rate of the 10%. 4. You elect to pay yourself a dividend of 51,000 at the end of the year. Lawn Care Summary Income Statements (Detail for Year 1): Part B: Note which revenue and expense accounts have changed and by how much Original 1 z 3 4 Revenue: $38,400.00 15 lawns @ 520/cut * 48 cuts/yr 514,400.00 10 lawns @ 530/cut * 48 cuts/yr $14,400.00 5 lawns @ S40/cut * 48 cuts/yr 59,600.00 Cost of Goods sold: (523,040.00) Labor @ $10/hr * 1,920 hrs {519,200.00) Gas @ 52/gallon * 1,920 gallons (53,840.00) Gross Margin: 515,360.00 General and Administrative Expenses: {54,300.00) Marketing @ $20/hr * 50 hrs ($1,000.00) Administration @ $20/hr * 150 hrs ($3,000.00) Supplies and Maintenance {%300.00) EBITDA (earnings before interest, taxes and depreciation): 511,060.00 Total Annual Depreciation: {5175.00) Mowers @ $500/Syrs ($100.00) Shed @ $1,500/20yrs ($75.00) Interest expense 50,00 Earnings Before Taxes 510,885.00 Taxes (Rate @ 0.25) ($2,721.25) Net Income After Tax 58,163.75 Comparative Balance Sheets: Part B: Note which asset, liability, or owner's equity accounts change and by how much As of 12/31 Assets: Cash $5,182.75 Securities 50,00 Receivables 53,156.00 Inventory $100.00 Current Assets 58,438.75 Investments Gross Book Value Lawn Mowers 5500.00 Gross Book Value Lawn Shed $1,500.00 Cumulative Dep Mowers and Shed (5175.00) Net Book Value of Investments 51,825.00 Total Asset 510,263.75 Liabilities and Owners Equity: Aceounts Payable 0.00 Salaries Payable 50,00 Current Loans Payable 50,00 Current Liabilities 50.00 Long Term Debt 50.00 Total liabilities 50.00 Common Stock 52,100.00 Preferred Stock 50,00 Retained Earnings 8,163.75 Total Owner's Equity 510,263.75 Total Liabilities and Owners Equity 510,263.75 Statement of Changes in Cash Flow: Part B: Note which cash flow items have changed and by how much Original Year 1 2 3 4 Net Income $8,163.75 Depreciation $175.00 (Inc)/Dec in Accts Receivable ($3,156.00) (Inc)/Dec in Inventory ($100.00) Inc/(Dec) in Accts Payable 50.00 Inc/(Dec) in Salaries Payable $0.00 Total Cash Flow from Operations $5,082.75 (Inc) in Gross Long-term Investments ($2,000.00) Sale of Gross Long-term Investments $0.00 (Inc)/Dec in Short-term Investments 50.00 Total Cash Flow from Investments ($2,000.00) Inc/(Dec) Short-term Financing $0.00 Inc/(Dec) Long-term Financing $0.00 Inc/(Dec) Equity Investment $2,100.00 (Dividends and Distributions paid to owners) $0.00 Total Cash Flow from Financing $2,100.00 Total Annual Cash Flow $5,182.75 Cash Balance at Beginning of Year 50.00 Cash Balance at End of Year $5,182.75