Question
1) Explain accrual accounting principle. Give an example of a non-cash expense. 2) Bike-With-Us Corporation is a specialty bicycle parts replacement venture. The two entrepreneurs
1) Explain accrual accounting principle. Give an example of a non-cash expense.
2) Bike-With-Us Corporation is a specialty bicycle parts replacement venture. The two entrepreneurs there borrowed $50,000 from members of their families and each put up $30,000 in equity capital. Retail space was rented and $60,000 was spent for fixtures and store equipment. Following are the abbreviated income statement and balance sheet information for after one complete year of operation.
BIKE-WITH-US CORPORATION
Sales | $325,000 |
Operating Costs | $285,000 |
Depreciation | $10,000 |
Interest | $5,000 |
Taxes | $6,000 |
Cash | $1,000 |
Receivables | $30,000 |
Inventories | $50,000 |
Fixed Assets, Net | $50,000 |
Payables | $11,000 |
Accruals | $10,000 |
Long-term loan | $50,000 |
Common Equity | $50,000 |
a) Prepare an income statement
b) Prepare a balance sheet.
3) A new business venture is expecting the followings:
Revenues = $5,000,000
Cost of Goods Sold = $3,000,000
Administrative Expenses = $1,000,000
Marketing Expenses = $200,000
Depreciation Expenses = $100,000
Interest Expenses = $50,000
Tax Rate = 25%
Calculate:
a) Variable Cost Revenue Ratio (VCRR)
b) Cash Fixed Costs (CFC)
c) Total operating fixed costs (TOFC)
d) EBDAT and Survival Revenues (SR) breakeven level
e) NOPAT and Operating breakeven revenues (NR) level
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