Reference no: EM131132549
ATC 14-1 Business Applications Case Preparing and using pro forma statements
Nancy Pinedo and Justin Johnson recently graduated from the same university. After graduation they decided not to seek jobs at established organizations but, rather, to start their own small business hoping they could have more flexibility in their personal lives for a few years. Nancy's family has operated Mexican restaurants and taco-trucks for the past two generations, and Nancy noticed there were no taco-truck services in the town where their university was located. To reduce the amount they would need for an initial investment, they decided to start a business operating a taco-cart rather than a taco-truck, from which they would cook and serve traditional Mexican styled street food.
They bought a used taco-cart for $15,000. This cost, along with the cost for supplies to get started, a business license, and street vendor license brought their initial expenditures to $20,000. Five-thousand dollars came from personal savings they had accumulated by working part time during college, and they borrowed $15,000 from Nancy's parents. They agreed to pay interest on the outstanding loan balance each month based on an annual rate of 6 percent. They will repay the principal over the next few years as cash becomes available. They were able to rent space in a parking lot near the campus they had attended, believing that the students would welcome their food as an alternative to the typical fast food that was currently available.
After two months in business, September and October, they had average monthly revenues of
$20,000 and out of pocket costs of $16,000 for rent, ingredients, paper supplies, and so on, but not interest. Justin thinks they should repay some of the money they borrowed, but Nancy thinks they should prepare a set of forecasted financial statements for their first year in business before deciding whether or not to repay any principal on the loan. She remembers a bit about budgeting from a survey of accounting course she took and thinks the results from their first two months in business can be extended over the next 10 months to prepare the budget they need. They estimate the cart will last at least five years, after which they expect to sell it for $5,000 and move on to something else in their lives. Nancy agrees to prepare a forecasted (pro forma) in- come statement, balance sheet, and statement of cash flows for their first year in business, which includes the two months already passed.
Required
a. Prepare the annual pro forma financial statements that you would expect Nancy to prepare based on her comments about her expectations for the business. Assume no principal will be repaid on the loan.
b. Review the statements you prepared for the first requirement and prepare a list of reasons why actual results for Justin and Nancy's business probably will not match their budgeted statements.
|
Do you know about slavery in the antebellum united states
: What do you know about slavery in the antebellum United States, and how does it compare to slavery as discussed in Oroonoko?
|
|
How the selected hospital performs on these indicators
: Write a paper of 1,000-1,200 words that analyzes how the selected hospital performs on these indicators versus two of its competitors. Include your thoughts on the pros and cons of publically reporting these data sets.
|
|
Markets and distributes recreational motor boats
: MarineCo manufactures, markets, and distributes recreational motor boats. Using discounted free cash ?ow, you value the company's operations at $2,500 million. The company has a 20 percent stake in a nonconsolidated subsidiary. The subsidiary is v..
|
|
Identify possible resources to meet the perceived needs
: Identify a program at a social agency or other human services program to which you have access and provide a description of the organizational context including the mission and objectives of the program and why an evaluation is being considered.
|
|
Applications case preparing and using pro forma statements
: Nancy Pinedo and Justin Johnson recently graduated from the same university. After graduation they decided not to seek jobs at established organizations but, rather, to start their own small business hoping they could have more flexibility in thei..
|
|
Do parents recognize some children as slow to warm up
: Use the nine aspects of temperament identified in the New York Longitudinal Study and the patterns of "easy," "difficult," and "slow-to-warm-up" as a framework for analyzing the parents' comparisons of their children.
|
|
Vista company installed a standard cost system
: 1. Purchased 17,200 units of raw materials on account at a cost of $3.60 per unit. Standard cost was $3.30 per unit.
|
|
A flexible budget for manufacturing overhead based
: Accounting Problem Exercise 24-4 Myers Company uses a flexible budget for manufacturing overhead based on direct labor hours. Variable manufacturing overhead costs per direct labor hour are as follows.
|
|
Given the suggested retail price of the company
: Given the suggested retail price of the company and using a 50% markup on price at retail, determine the sell price to the distributor/merchandiser.
|