Samira’s Candle Corporation (SCC) is in its first year of operations. Using the information below, prepare a year-end income statement and balance sheet for the business (Remember to increase/reduce equity by the amount of income/loss). Through 2020, SCC purchased 7,500 candles at an average cost of $2.75 per candle. Samira marked up her candles to 2.25 times purchase price and sold all items in the same year. On December 31st, Samira had $31.25 cash in her corporate bank account and no remaining inventory, so she ordered 4,000 candles (with cash) at a cost of $1.65 each (they were delivered to her the same day). Samira is paid a monthly salary of $1,200 from SCC. Also, she rents a sales booth on weekends, so she can sell candles in person (in addition to online). The booth costs her $750 per month. At the start of the year, Samira invested $1,000 into her business (100 common shares). She also obtained a bank loan of $7,000 (SCC has only paid annual interest of 5%).

Other than the bank loan and a $4,200 accounts payable balance, ABC holds no debts. 

a. At the start of the year, Samira's purchased furniture for $3,000 (expected life of 15 years with no salvage value) and sewing equipment for $2,000 (expected life of 10 years with no salvage value). Both assets are depreciated using the straight-line method. 

b) In 2020, Samira's plans to double her salary and spend $2,500 on marketing. She projects her cost to rise to $2.25 per bandana, but she expects to sell twice as many units as last year, at a price of $6 apiece. 

Assuming the other expenses remain constant, what does ABC’s second year look like? Write a short essay on what Samira's should expect and give her appropriate business advice (You may use the projections below as part of your analysis).

Ratio December 31, 2020 projection

Current ratio 1.50

Debt-to-Assets 0.60

Answer rating: 100% (QA)

Answer Workings are in the detailed explanation box Refer that box for all the projections Business ... View the full answer