The Background: In the upcoming summer, thirteen-year-old Juliette wanted to make some cash the old-fashioned way: by getting someone else to earn it for her. Who better than her two younger brothers Victor and Sam? After all, they were eager and would work for chocolate. Who knows, maybe her parents would even pay to get rid of them engage the boys in some intellectual activity... Planning for Lemonade Season: Juliette decided to withdraw $300 from her savings account to start two lemonade stands, one each for Victor and Sam. She spent $60 each on two used tables, which had about six seasons remaining. She bought packages of cups and lemonade mix. Juliette also spared no expense to secure two high-quality glass pitchers at a cost of $42 total. The pitchers should last three seasons, or at least that's what the ad said. She skipped buying chairs figuring the boys could stand for a good two hours without complaint or permanent back problems. She also figured she would have to pay them $2 each day they decided to work (yes, violating every child labor law in existence, but she was only 13 and unlikely to see hard jail time). Since each stand would be within walking distance of their home, they could get ice from the freezer as needed, and retrieve water from the garden hose out front. Victor's Set-Up: She set Victor's lemonade stand up first and provided him with 100 plastic cups (cost of $5 total) and four pounds of lemonade mix (cost of $20 total), and she gave him a table and a pitcher. He also got $10 in cash to use for change. Walking away, she was confident that her $116 investment would pay off. As soon as Juliette rounded the corner, Victor called for their mommy and asked to borrow $7 to buy a big umbrella to shelter his delicate skin from the harmful UV rays. Victor is now officially ready for Lemonade Season. Sam's Set-Up: Juliette next turned her sights to Sam's lemonade stand, which would be around the corner. Since he was younger, she only provided him with 50 plastic cups (costing $3 total), and two pounds of lemonade (cost of $10 total). She provided him with his table and glass pitcher. She then gave him only $2 to use for change because she didn't trust him with the cash. She was glad she'd only got $96 invested into Sam's lemonade stand as she didn't think he was going to work very hard. On the other hand, she figured people might buy more junk from younger kids, so who knows? Sam proceeded to watch his big sister head into the house, stirred up the first pitcher of lemonade, made a big "CONTRIBUTIONS WELCOME" sign, then headed over to his buddy's house to play. Of course he poured a couple of cups for the road - after all, they might get thirsty. Juliette hid the remaining money under her mattress just in case it was needed for a good reason in the first couple weeks of the season, then put on her bathing suit. As she headed to the beach with her friends, Juliette couldn't help but wonder if she should have left her hard-earned money in the bank, earning 5% interest guaranteed. This case was prepared by Mark Potter, Professor of Finance at Babson College. It was developed as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. The funding for the case was provided by the Teaching Innovation Fund at Babson College. It is not intended to serve as an endorsement, source of primary data or illustration of effective or ineffective management.

Victor's Season: Victor worked a total of 25 days but hadn't been paid yet as he didn't want to take the money until Juliette gave him the ok. He sold 90 cups of lemonade at a price of $2 each and provided her with detailed charts and graphs showing daily and hourly sales. He received cash from 80 customers, and another ten customers said they would pay by the end of the following week. He had a list of everyone who owed money and how much they owed, where they lived, and a signed IOU from each person. He used up three of the four pounds of the lemonade mix. Victor paid mommy back $4 out of what was owed to her for the umbrella. Juliette took a total of $6 from Victor's cash on hand to buy some sunscreen for herself during the summer. The umbrella appeared to be in great shape; it seemed like it could be used for many more years. She gave Victor a pat on the back and told him he may be up for a raise for next year - something like a cost of living adjustment plus 1%.

Sam's Seaons: The first week of the summer, Juliette got worried that she had too much money tied up into her younger brother's stand. So she borrowed $50 from their dad and said she'd pay him back at the end of the summer, plus an additional $5 of interest. Sam said that he had worked a total of 15 days and already taken the $30 that he said he had earned. He claimed to have sold 45 "or so" cups of lemonade, and there was a total of $117 cash on hand at season's end, crumpled up in a can Sam handed to her. Sam swore that he had sold $153 worth of lemonade, and he also remembered selling lemonade to a group of five kids who said they'd drop by at some point to pay up. He had no idea who they were but thought two of them looked familiar. There were no cups left, no lemonade mix was in sight, and the pitcher was broken. Juliette took $8 from Sam's stand during the season to buy some pizza for herself and her friends. There was a note from a neighbor indicating that Sam took some lemonade mix when he supposedly ran out and still owed $4. The table looked pretty rough and Juliette figured that it only had two years of life left on it. Juliette talked to Sam about pink slips, reductions in staff, and layoffs, and she blamed it all on some sort of banking crisis permeating the Eurozone.

Answer the following questions

create the following six documents (not to be submitted)

2. Sam's pre-season balance sheet
4. Victor's pre-season balance sheet
6. Sam's income statement
8. Victor's income statement
10. Sam's summer-end balance sheet
12. Victor's summer-end balance sheet

HINT:

The balance sheet categories to be used include

• Assets
• Accounts receivable
• Cash
• Cups
• Lemonade
• Pitcher
• Umbrella
• Liabilities and shareholder equity
• Debt
• Paid-in capital
• Retained earnings
• Wages payable

The income statement categories include

• Revenue
• Cups
• Interest expense
• Labor
• Mix
• Pitcher
• Table
• Net income
• Dividend
• Change to retained earnings