One of the shareholders of Blossom Cookies and Cakes Ltd. is considering selling her shares, which...

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One of the shareholders of Blossom Cookies and Cakes Ltd. is considering selling her shares, which represent one-third of the company's outstanding shares. The company is preparing its financial statements, which will be used by the shareholder to help determine the value of her shares. The following transactions have occurred since the shop started operations at the beginning of this year: 1. 2. 3. 4. 5. 6. 7. The company borrowed $25,000 from the bank to help get the business started and repaid $10,000 of this before year end. Shareholders also paid a total of $25,000 for their shares when the company started. Ingredients costing $40,000 were purchased on account, and 80% of these ingredients were used in goods that were baked and sold during the year. Before the end of the year, payments of $36,000 were made for these ingredients. Baking ovens were rented for $7,200 cash, paid at a rate of $600 per month. At the end of the year, the company purchased its own ovens for $40,000 cash. Employees earned wages of $20,000 during the year. The company withheld income taxes of $2,000 from their paycheques, which it will forward to the Canada Revenue Agency (CRA) early next year. In other words, although the employees' wages were $20,000, the company deducted income taxes and paid only the remaining $18,000 net amount to the employees; it will pay the $2,000 of income taxes directly to the CRA. (Note that these income taxes relate to the employees' earnings, not the company's earnings. Consequently, they are recorded as part of the company's wage expense, not as income tax expense.) Interest on the bank loan for the year totalled $1,200, but has not yet been paid. Various other expenses totalled $12,000 for the year, but only $11,000 of this amount was paid before the end of the year. After $76,400 was collected from the sale of goods (which was the full sales amount), the cash balance at the end of the year was $4,200, and net income of $4,000 was reported. One of the shareholders of Blossom Cookies and Cakes Ltd. is considering selling her shares, which represent one-third of the company's outstanding shares. The company is preparing its financial statements, which will be used by the shareholder to help determine the value of her shares. The following transactions have occurred since the shop started operations at the beginning of this year: 1. 2. 3. 4. 5. 6. 7. The company borrowed $25,000 from the bank to help get the business started and repaid $10,000 of this before year end. Shareholders also paid a total of $25,000 for their shares when the company started. Ingredients costing $40,000 were purchased on account, and 80% of these ingredients were used in goods that were baked and sold during the year. Before the end of the year, payments of $36,000 were made for these ingredients. Baking ovens were rented for $7,200 cash, paid at a rate of $600 per month. At the end of the year, the company purchased its own ovens for $40,000 cash. Employees earned wages of $20,000 during the year. The company withheld income taxes of $2,000 from their paycheques, which it will forward to the Canada Revenue Agency (CRA) early next year. In other words, although the employees' wages were $20,000, the company deducted income taxes and paid only the remaining $18,000 net amount to the employees; it will pay the $2,000 of income taxes directly to the CRA. (Note that these income taxes relate to the employees' earnings, not the company's earnings. Consequently, they are recorded as part of the company's wage expense, not as income tax expense.) Interest on the bank loan for the year totalled $1,200, but has not yet been paid. Various other expenses totalled $12,000 for the year, but only $11,000 of this amount was paid before the end of the year. After $76,400 was collected from the sale of goods (which was the full sales amount), the cash balance at the end of the year was $4,200, and net income of $4,000 was reported.

Answer rating: 100% (QA)

To determine the value of the shareholders shares we need to analyze the companys financial statements and calculate its equity 1 Start with the initi... View the full answer