1. At the end of 2020, what portion of the loan did Uncle Barry want paid off in
2021? How much of the loan was actually paid off in 2021? What was the total
amount of cash received by Barry in 2020 and 2021?
2. Assume that the price Krysta paid for her shares was the share price throughout
2020. Using that price, calculate the price-earnings ratio for that year. Assume
that the price Krystas mother paid for her shares was the share price throughout
2021. Using that price, calculate the price-earnings ratio for 2021.
3. When the company was formed, how much did Krysta pay for her shares? How
much did her mother pay for her shares?
4. Calculate the current ratio, the debt to total assets ratio, the basic earnings per
share for each year. What can you interpret from these results?
Klemmon, the company's only employee, con with various clients and expensive equipment to complete her work. When the company was formed, Krysta bought 10,000 common shares but at the beginning of 2021 another 1,000 common shares were sold to Krysta's mother In addition to selling shares, Krysta Design received financing from Krysta's Uncle Barry in the form of a loan that was taken out on January 1, 2020 Her uncle required the company to pay only the interest on the loan and no principal in 2020, which Krysta Design did. However, he wanted both interest and a portion of the principal to be paid during 2021. These payments were made evenly throughout 2021. Barry was surprised when Krysta paid down more of the loan balance in 2021 than he asked her to The following shows the financial statements of the company for the past two years. KRYSTA DESIGN Income Statement Year Ended December 31 2021 2020 Service revenue $120.000 $100,000 Salaries expense 75.900 54.000 Rent and other office expenses 19.900 20,300 Depreciation expense 11.900 12.100 Interest expense 2.800 4.700 Income before income tax 9,500 8.900 Income tax 2.590 2.690 Net income $6,910 $6.210 KRYSTA DESIGN Statement of Financial Position December 31 2021 2020 Cash $ 10,800 $ 23,900 Accounts receivable 36,800 9.700 47,600 33.600 Equipment 84,400 84,300 Accumulated depreciation (23,500) (13.900) 60,900 70 400 $108,500 $104.000 Accounts payable $ 30,000 $ 14.290 Current portion of loan payable 4,500 9.500 34,500 23.790 Loan payable 27,680 50.800 62,180 74,590 Common shares 33,200 23,200 Retained earnings 13,120 6210 46,320 29.410 $108,500 $104.000 Klemmon, the company's only employee, con with various clients and expensive equipment to complete her work. When the company was formed, Krysta bought 10,000 common shares but at the beginning of 2021 another 1,000 common shares were sold to Krysta's mother In addition to selling shares, Krysta Design received financing from Krysta's Uncle Barry in the form of a loan that was taken out on January 1, 2020 Her uncle required the company to pay only the interest on the loan and no principal in 2020, which Krysta Design did. However, he wanted both interest and a portion of the principal to be paid during 2021. These payments were made evenly throughout 2021. Barry was surprised when Krysta paid down more of the loan balance in 2021 than he asked her to The following shows the financial statements of the company for the past two years. KRYSTA DESIGN Income Statement Year Ended December 31 2021 2020 Service revenue $120.000 $100,000 Salaries expense 75.900 54.000 Rent and other office expenses 19.900 20,300 Depreciation expense 11.900 12.100 Interest expense 2.800 4.700 Income before income tax 9,500 8.900 Income tax 2.590 2.690 Net income $6,910 $6.210 KRYSTA DESIGN Statement of Financial Position December 31 2021 2020 Cash $ 10,800 $ 23,900 Accounts receivable 36,800 9.700 47,600 33.600 Equipment 84,400 84,300 Accumulated depreciation (23,500) (13.900) 60,900 70 400 $108,500 $104.000 Accounts payable $ 30,000 $ 14.290 Current portion of loan payable 4,500 9.500 34,500 23.790 Loan payable 27,680 50.800 62,180 74,590 Common shares 33,200 23,200 Retained earnings 13,120 6210 46,320 29.410 $108,500 $104.000
