Madison Barlow takes out a loan of $100,000 at 5% yearly interest to start a small landscaping
Question:
Madison Barlow takes out a loan of $100,000 at 5% yearly interest to start a small landscaping firm. At the end of 2020, her company's first year, she calculates that they have charged customers for work completed $310,000 in total. Of this, $260,000 has been collected, while $50,000 still remains to be paid.
• Ms. Barlow collects a monthly salary of $6,000. She also employs a head landscaper at a yearly salary of $28,000, as well as two assistant landscapers who each earn an hourly wage of $14/hr., working 40 hours per week for a total of 36 weeks per year.
• Benefits for Ms. Barlow and her employees totaled $25,800 in 2020. In addition, she paid $22,000 in employment taxes.
• Ms. Barlow leases two trucks for the business, each at $2,000/month. In addition, she purchased a total of $35,000 of new depreciable equipment. Estimated depreciation on this equipment over the year was $9,200. The firm also purchased a total of $27,000 worth of materials (including mulch, herbicides, and hardscaping components) for use in its various landscaping jobs, all of which was used. Additional miscellaneous operating expenses, including gas, totaled $9000. The firm also purchased $1,100 worth of local advertising.
• Ms. Barlow's tax rate was 21% during 2020.
1. Prepare a 2020 income statement for Madison Barlow’s firm (assume Barlow uses accrual accounting, not cash accounting).
2. Evaluate her financial performance over the year using ratio analysis.
Introduction to Derivatives and Risk Management
ISBN: 978-1305104969
10th edition
Authors: Don M. Chance