Reference no: EM133057197
Question - Ken Best owns two Best Products stores in Florence, South Carolina. He believes that the stores have been successful and he wants to open a new store in Sumter about 30 miles west of Florence. Matt has been in the retail line for over 20 years, and he worked at his uncle's hobby shop while in high school and college before starting his own store at the age of 25.
Two big secrets to a successful toy store operation are good location and product selection. Ken's first store is located in downtown Florence. Since Ken had been born and raised in Florence, he attracted a good customer base that remained loyal to his store after some of the giant chain related toy stores began to move into the area. About 10 years ago, Ken saw the change in customer shopping habits and purchased a second store near an interchange to Interstate 95 in a rapidly growing retail area. Lots of new families had moved into the area, and Ken could not totally rely on the "good old boy" market alone to sustain his market share. This second store catered to the younger more mobile generation that shopped at or near malls.
Ken now was looking into other markets. Sumter was not located on the interstate, but the area was growing because of its proximity to the state capital of Columbia, which was just 30 miles to its west. Ken believed that the people of Sumter who commuted to work in Columbia would prefer to limit their driving for shopping activities to the immediate Sumter area. Also, since Ken was a respected citizen of Florence, his reputation as an honest businessman had spread to Sumter. He believed he could quickly build up a new customer base in that location. The big chain type stores also did not seem as interested in the Sumter area, preferring instead to locate in the larger metropolitan areas of Columbia and Florence.
The appropriate toy items to feature in his stores were very important. Ken felt that his area of influence was strictly regional, and he did not have to carry much of the standard inventory of the national chain type of toy stores. His toy lines were more a reflection of local interest; thus NASCAR related items were hot sellers. His clientele also seemed interested in computer action games and a new line of talking dolls.
Ken went to the Florence National Bank to inquire about funding for the new store location. He had found an abandoned furniture store in downtown Sumter along Main Street that was up for sale for $280,000. The store seemed to be the right size and at a good location. A grocery store was in the same block with ample off street parking. He brought his balance sheet for the last two years and an income statement for the last operating year to the bank to support his request for a retail loan of $250,000. (Copies of the financial statements are listed at the end of the quiz).
Jeff Miser, the local bank loan vice president had been a friend of Ken's for many years. He was a customer at Ken's toy store on close out sales, and his bank had underwritten the funding for the second store. Jeff was excited about Ken's expansion goals and the prospect of another business loan with his friend. At the same time, Jeff had to live up to his reputation. He was not about to approve a loan unless he was almost 100 percent sure that the borrower would not default. Ken's past success had alleviated much of Jeff's concern, but he still wanted to complete a detailed analysis of the financial performance of Best Products during the last calendar year. Upon reviewing the balance sheet, Jeff knew with covid during the last year reduced the foot traffic though Ken showed a strong profitable performance. The current financial statements did not seem to give enough information to answer Ken's questions and he asked Ken to prepare a statement of cash flows for the year ending December 31, 20xx.
Additional transaction data
Cash paid for purchase of equipment $140,000
Cash paid for dividends $18,000
Issuance of common stock to retire bonds payable $13,000
Issuance of bonds payable to borrow cash $ 44,000
Cash receipt from issuance of common stock $19,000
Cash receipt from the sale of equipment (Cost-$84,000; Accumulated Depreciation-$8,000) is $74,000
Cash paid for purchase of treasury stock $5,000
Required - Develop a Statement of Cash Flows for Best Products for the 2nd year ending December 31, 20xx.