Reference no: EM132563328

Juan O'Sullivan graduated in May 2017 from and looked everywhere for a job. He searched and searched for a decent job, and after a while he decided that the only way to get ahead was to start his own business. In order to support himself, Juan decided to pursue a life-long dream of owning a hot dog cart business in downtown Chicago. Without any substantial savings of his own, Juan borrowed $3,600 to purchase a hot dog cart from the local bank at an interest rate of 2.0% per year, with a loan duration of three years. Computed using simple interest formula, his annual interest payment is $72. To fund start-up costs, Juan sold his car to buy basic supplies like hot dogs, buns, wrappers, and all the condiments (e.g., mustard, relish, onions, etc.) to make a great hot dog. For accounting purposes, Juan considers the "supply" cost per one piece of hot dog sold as $0.65. Juan always buys supplies in quantities of 1,000 to ensure an adequate inventory supply. Juan hired his best friend from school, Jim, to help work with the hot dog cart. Jim works 40 hours per week (2080 hours per year) at the rate of $8.00 per hour. To be a good employer, Juan provides benefits to Jim. The cost of these benefits is 29% of Jim's total salary. Note: Juan's own compensation is based on the bottom line (i.e., profit or loss) of the business. The price of each hot dog is $3.00. Condiments are free. In addition to selling to the public, Juan has a contract with the Chicago police department --- this contract provides the local police with a $1.75 discount for each purchased hot dog.

Further, Juan is charitable and provides free hot dogs to needy families that can't afford to pay. Sometimes, when a good customer forgets their wallet, Juan will give them a hot dog based on their promise to pay the next day (Juan truly is a good guy). As part of owning a business, Juan also has the need to purchase insurance to protect his business against the threat of fire, flood, or theft. Insurance cost is $160 per year. According to generally accepted accounting principles (GAAP), Juan should depreciate the hot dog cart in equal amounts over five years (straight line). Assume that due to his charitable nature, John's business is tax exempt. (See additional information below, i.e. 4a and 4b, etc.).

Questions:

Question 1 If Juan sold a total of 18,500 hot dogs (includes 6,750 sold to policemen), what is the total or gross revenue for the year?

Question 2 Assuming that Juan provided an average of 45 free hot dogs per month to needy families, and adding the discount given to members of the policemen, what is the total contractual and charity allowances for the year?

Question 3 Calculate the Net Revenue. [Net Revenue = Total Charges minus Discounts]

Question 4 What is the annual principal payment? The annual interest payment?

Question 5 What is the Operating Margin? (in percent) - operating margin is a measure of the level of profitability experienced in a firm's operations.

Question 6 What is the amount of total fixed assets (equipment) at the end of the year? (consider 1 year depreciation)

Question 7 Assuming there are no more equipment purchases, what will be the value of total fixed assets at the end of the second year? (consider 2 years depreciation)

Question 8 What is the value of inventory at the end of the year? Inventory is the total goods on hand and available to sell, presumably within a year.

Question 9 What is the value of Accounts Receivable at the end of the year? See item 4b above.

Question 10 Assuming that the Balance Sheet shows Total Assets of $5,180, and Total Liabilities of $3,400, what is the value of Net Assets?