$1.$ Use the information below to create an Income Statement and Balance Sheet at the end of the first year of your new business

You have just completed your first year in your own business. You have used all your experience working at McDonald$$s and Tim Horton$$s to fulfil your dream of having open your own restaurant. All your friends and family said you won$$t be able to compete against the big chains, but you managed to survive your first year of business. But you do not really know if you made money or not, or how best to finance future expansion. So you thought it would be best to draft an income statement and balance sheet using the principles you learnt in your accounting and finance courses at Humber College.

Use the information below to draft your fist year income statement and balance sheet for January $1$ to December $31,2021.$

$$ On your Income Statement, be sure to detail your sales, COGS, Gross Profit, Expenses, Net Profit before tax, Net profit after tax.

$$ On your Balance Sheet, be sure to detail your Fixed Assets, Current Assets, Liabilities, Retained Earnings and Equity.

Your first year of business went like this:

$1.$ You decided to use your savings of $$20,000$ to start your new restaurant.

$2.$ You registered your business as a Corporation, with $20,000$ nominal shares of $$1$ each.

$3.$ You went to your bank with your business plan to request a loan. They rejected your request as you did not have enough capital, collateral or credit history with the bank.

$4.$ Your family gave you $$30,000$ to start your business. They did not expect any interest, but expected to be paid back over the next $5$ years.

$5.$ You found a great location in Toronto to rent for $$4,000$ per month. You purchased the following:

a$.$ Stoves, fridges, freezers and other kitchen equipment for $$15,000$ to be depreciated at $20\%$ per year.

b$.$ Tables, chairs and other furniture for $$10,000,$ to be depreciated at $10\%$ per year.

c$.$ Signage and fixtures for $$5,000,$ to be depreciated at $10\%$ per year.

d$.$ Cutlery, utensils, wares, pots, pans, menu$$s etc. for $$5,000.$ These are expensed in the first year.

e$.$ You used your own car for your business which was valued at $$5,000,$ and is to be depre$-$ciated at $20\%$ per year.

$6.$ You opened your restaurant on January $1,2021$

$7.$ You launched your website and started advertising your opening specials on Social Media and your local community newspapers. Your spent $$5,000$ in marketing expenses in $2021.$

$8.$ You hired two employees, one for the kitchen and another to serve customers. You would fill in as required. You paid your employees $$15$ an hour. They worked $10$ hours $/$ day from $11$ am $9$ pm $6$ days a week.

$9.$ You decided to pay yourself as the Restaurant Manager $$2,500/$mth until business grew.

$10.$ Sales began slowly as can be expected in January, but picked up after March. For the year, sales averaged $$25,000$ per month.

$11.$ The average selling price per meal was $$12.$

$12.$ The cost of the food and beverage ingredients was not very high, averaging $20\%$ of sales.

$13.$ Utility costs were as follows: Electricity $$250/$mth; Gas $$300/$mth; Water $$200/$mth; Telephone and Internet $$300/$mth$.$

$14.$ Property and Liability Insurance: $$1,800/$ yr$.$

$15.$ Your vehicle expenses for gas, maintenance and car insurance totalled $$4,000$ for $2021.$

$16.$ As a small business, your Federal Tax rate is $9\%$ and your Provincial Tax rate is $3\%.$

$17.$ As of December $312021,$ you had no accounts receivable from your customers, but you owed your food and beverage suppliers $$3,500.$ All other expenses were fully paid up$.$ Your inventory of food and beverage ingredients amounted to $$2,500.$

Income Statement $$ Balance Sheet $$

Sales

Less COGS

Gross Profit

Less Expenses $($List$)$

Net Profit Before Tax

Taxes

Net Profit After Tax

Current Assets $($List$)$

Fixed Assets $($List$)$

Less Depreciation

Total Assets

Current Liabilities $($List$)$

Long Term Liabilities $($List$)$

Owners Equity

Retained Earnings

Total Liabilities and Equity

$2.$ Use the financial statements above to calculate the following measures:

Measure Formula Value

$1.$ Current Ratio Current assets $/$ current liabilities

$2.$ Debt to Equity Ratio Total debt $/$ total equity

$3.$ Gross Margin Gross profit $/$ sales

$4.$ Return on Sales $($ROS$)$ Net profit $/$ sales

$5.$ Return on Equity $($ROE$)$ Net profit $/$ total equity

$6.$ Earnings per Share $($EPS$)$ Net profit $/$ shares outstanding

$7.$ Price Earnings Ratio $($PE$)$ Share Price $/$ EPS

$3.$ The general formula for calculating break$-$even units is Break$-$Even Units $=$ Total Fixed Costs $/($Unit Selling Price $$ Unit Variable Cost $).$ Considering the variable costs, fixed costs and average monthly sales, how much sales are required monthly to break even? Show your working. State your assump$-$tions.

$4.$ Calculate the value of this business using the following simplified $($rule of thumb$)$ measures:

Measure Formula Value

$1.$ Cash Flow $3$ x $($Net Profit $+$ Depreciation $+$ Bank Interest$)$