Mrs. Hop is going to open a music store with CDs. She has got CZK 180 000

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Question:

Mrs. Hop is going to open a music store with CDs. She has got CZK 180 000 from her savings, which she invests into her business and she has also received a bank loan in the amount of CZK 70 000. She bought an equipment (CZK 90 000), CZK 120 000 she spent on the CDs. The space for the shop will be rented and she will pay the rent in the next month i.e. June rent will be paid in July etc.

a) Prepare the opening balance sheet of Mrs. Hop. Do not forget to comply with the European or the American habits. (15 points)

We are at the end of the first month of her operations. She sold one third of her CDs bought at the beginning to satisfy her customers. Individual customers paid in cash, but she also sold some CDs to disco clubs and these customers received invoices, which are due in two months. The table below summarizes her revenues in the first month:

individual customers

CZK 50 000

disco club 1

CZK 18 000

disco club 2

CZK 30 000

At the end of the month Mrs. Hop paid in cash bank loan interest (CZK 1000) and her salary (CZK 30 000) - everything paid and used during the first month. A rent (CZK 20 000) for the first month of her operations will be paid during the second month.

She has also received an invoice for utilities used during the first month (CZK 2 000), which will be paid in 30 days. Equipment is depreciated using straight line method for 30 months starting from the first month (now). During the first month she bought new material in the value of CZK 50 000. Bank loan is not repaid at the moment, just the interest. Tax rate is 25% and will be paid immediately in cash.

b) Prepare her income statement (10 points) for the first month.

c) Prepare her cash flow statement using direct method for the first month (10 points), you do NOT have to include different CF levels (operating, financing, investing), only list the items (plus minus).

d) Prepare a balance sheet as of the end of the first month based on the information above incl. receivables/payables/cash balance/retained earnings etc. Do not forget to comply with the European or the American habits. (16 points)