Reference no: EM132941701

"Support Local" is a non-profit organization that provides consulting and management advice with a mission to assist locally owned businesses grow and prosper. The organization operates with 3 employees and from rented premises.

Support Local has completed one year of operation with the following balance sheet and income statement items:

Cash: $10,000
Account Receivables: $2,000
Supplies: $5,000
Long-term assets: $25,000
Equity/Retained earnings: (You are required to calculate)
Short term bank loan: $5,000
Trade creditors: $2,000
Long-term bank loan: $10,000
Accrued expenses: $3,000
For the first year; sales (fees charged for their services) was $150,000, operating expenses were $120,000 and there was $2,000 in bank interest and $5,000 in depreciation.

Support Local has received more applications than expected from locally owned businesses seeking assistance in their 1st year and as a result, the Board of Directors have decided to increase the size of the non profit organization by hiring an additional two employees and moving to larger rented premises. To relocate to larger premises, it will cost $25,000. The $25,000 cost is for new equipment ($20,000) and moving expenses ($5,000). A bank loan of $30,000 has been approved that will provide the organization with $5,000 cash that can be used as working capital. The bank loan would need to be repaid over 5 years.

Support Local is forecasting for their 2nd year sales (fees charged for their services) of $250,000, operating expenses of $220,000, and in addition, depreciation of $10,000, and bank interest of $5,000.

Instructions:

Problem 1) Prepare a balance sheet and income statement for Support Local for the first year of operations. Calculate the current ratio and explain what the ratio means. Provide your opinion on the Balance Sheet and Income Statement by advising if the financial results should be acceptable and satisfactory to the Board of Directors.

Problem 2) Explain how depreciation impacts the cash flow of the organization. What is the difference between cash flow and net income?

Problem 3) Explain the difference between short and long term debt. How would you determine the acceptable level of debt for the organization?

Problem 4) Prepare a forecasted income statement for the 2nd year. Given the forecasted 2nd year, comment on the financial and non-financial merit of the expansion strategy of the organization.

Problem 5) List 3 goals this organization should have and why.

Problem 6) Explain how you would monitor the financial performance of this organization.