12:55 7123 100% MBAC-5103-A3-MA-S20.pdf MBAC-5103 MA Assement 3 II. Financial Information Mountain Sports Ltd. Balance Sheet December 31, 2020 ASSETS Cash Accounts receivable (see note 4) Merchandise inventory (see note 5) Vehicles (net) Furniture and fixtures (net) Total Assets 210,045 93,480 302,670 137,171 218.880 962.246 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Wages payable Accounts payable (see note 6) Shareholders' loan payable (see note 2) Total Liabilities 77,520 38,833 142.500 258,853 SHAREHOLDERS' Equity Share Capital: Common shares, no par value 100,000 shares authorized, 20,000 shares issued Retained Earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity 228,000 475,393 703,393 962,246 MBAC-5103 MA Assignment 3 II. Financial Information continued 1,940,401 826,372 1.114,029 Mountain Sports Ltd. Income Statement For the Year Ended December 31, 2020 Sales Cost of Goods Sold Gross profit on sales Operating expenses: (See note 1) Advertising (see note 7c) Depreciation Property taxes Rent (see note 1b) Repairs & service expenses Salaries and commissions Utilities Total operating expenses Operating income Interest expenses (See note 2) Income before taxes Income taxes (see note 3) Net income 123,040 21,341 32,000 134,808 94,118 320,708 100,000 826,015 288,014 6,413 281,601 78,849 202,753 MBAC-5103 MA Assignment 3 II. Financial Information continued Mountain Sports Ltd. Income Statement Segmented by Product Line For the Year Ended December 31, 2020 (See note 7) Cross Country Ski Mountain Packages Bicycles Accessories Repair & Service Dept. TOTAL Sales Cost of goods sold Gross Profit 1,940,401 826,372 1.114,029 603,060 271,377 331,683 820,943 377,634 443 309 399,605 159,842 239 763 116,793 17,519 99,274 7,406 5,335 8,000 33,702 Operating expenses (see note 7) Advertising Depreciation Property taxes Rent Repairs & service expense Salaries & commissions Utilities Total Expenses Operating income (loss) Interest expenses (see note 9) Income (Loss) before taxes Income tax (see note 10) Net Income (Loss) 123,040 21,341 32,000 134,807 94,118 320,710 100,000 826,016 288,013 38,240 5,335 8,000 33,702 31,124 83,570 25,000 224,971 106,712 52,056 5,335 8,000 33,702 42,370 83,570 25.000 250,032 193,277 25,339 5,335 8,000 33,702 20,624 83,570 25.000 201,570 38,193 70,000 25.000 149,443 (50, 169) 1,603 1,603 1,603 36,590 6,413 281,600 78,849 202,751 1,603 105,109 24,506 80,604 191,674 33,359 158,314 16,238 20,352 (51,772) 4,746 (56,518) Page 5 of 12 MBAC-5103 MA Assignment III. Notes to Financial Information 1. The following information relates to operating expenses: a) Employees are paid fixed monthly salaries supplemented by a 3% commission on all sales except for the Repair & Service department's sales b) The rent is fixed at $8,000 per month plus 2% of sales. c) Utilities are fixed costs, even though they will increase significantly next year. d) Repairs and Service expense varies with sales activity e) Depreciation and property taxes are fixed costs. f) Advertising budgets are committed to at the beginning of each year. 8) Cost of goods sold always varies with sales. 2. The interest expense represents the 4.5% interest charge on the outstanding shareholders' loan. 3. Income taxes are calculated at 28% of income before taxes. 4. Accounts receivable are generated through a small number of large sales to sports rental operations and school boards. Uncollectible accounts have not been a problem and are negligible 5. Because much of the merchandise inventory is produced in Asia, large orders are placed several months prior to peak seasons. Ordering well in advance saves ordering and shipping costs. 6. Accounts payable to suppliers are promptly paid within 30 days. Page 6 of 12 MBAC-5103 MA Assignment 3 III. Notes to Financial Information continued 7. The following information relates to the income Statement Segmented by Product Line: a) Rent, utilities, depreciation, and property taxes have been allocated equally amongst the 4 product lines. However, if any one of the product lines was eliminated, these costs will remain i. b) Details of salaries and commissions follow (payroll fringe benefits are included): 3% sales commissions were paid on all sales except for the sales of the Repair & Service department ii. The two (2) managers are paid $38,000 each per year. Both are responsible for the company as a whole. Besides sales commissions, the four (4) sales clerks are paid $2,500 each per month. They sell all 3 product lines (skis, bikes and accessories). If any product line is eliminated, the sales clerks will still remain. During the year, the two (2) Repair & Service technicians combined were paid a total salary of $70,000 for the whole year and are allocated entirely to the R&S department. Thus, if the department was discontinued, the technicians would not be required. iv. c) Advertising Mountain Sports Ltd, spent advertising on product lines as follows: For the company as a whole $ 25,000 For the individual product lines: Cross Country Skis $ 38,190 Mountain Bikes 45,600 Accessories 5,700 Repair & Service 8,550 98,040 Total Advertising Cost $123,040 Note: you will observe that the amounts on the income statement differ for the individual product lines due to the allocation of $25,000 in general company advertising costs Page 7 of 12 MBAC-5103 MA Assignment 3 III. Notes to Financial Information continued 8. Interest expense has been allocated equally to each product line & Repair & Service department. Interest expense is considered a financing cost which benefits the whole operation. Therefore, they are not traceable to any individual product line or department. 9. Income taxes have been allocated based on sales. Income taxes are calculated after all costs, including common costs have been deducted. Therefore, they are not traceable to any individual product line or department MBAC-5103 MA Assignment 3 Requirement 3b: Branch Expansion Cash Budget Financing a Bank Loan Assume that the five owners of Mountain Sports Ltd. decide to collectively invest $114,000 of personal funds into the Canmore expansion. Mountain Sports will require an open line of credit up to a maximum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line credit plus interest within a year. Prepare a Cash Budget for the first year of operation of Canmore by quarter and in total. Show clearly on your budget the quarter(s) in which borrowing will be needed and the quarter(s) in which repayments can be made, as requested by the company's bank. Additional Information: a) Sales by quarter are 15%, 5%, 25%, and 55% of annual sales. b) 60% of all sales are cash. The rest are credit sales which will be collected in the following quarter. c) Merchandise purchases (or cost of goods sold) are all paid in the quarter following purchase. All purchases are made in the same quarter that sales occur. d) The beginning cash balance is $114,000. This is the amount the owners are capable of investing in this new venture. A minimum of $25,000 balance is needed at the end of each quarter. If any interest is payable on credit line borrowings, you may assume a reasonable interest rate. Borrowings are assumed to be at the beginning of the quarter and repayments at the end allowing for a calculation of interest based on the previous quarter's borrowing and is paid at the beginning quarter following the borrowings. e) In year 1, income tax installments of $9,500 per quarter will be made. 12:55 7123 100% MBAC-5103-A3-MA-S20.pdf MBAC-5103 MA Assement 3 II. Financial Information Mountain Sports Ltd. Balance Sheet December 31, 2020 ASSETS Cash Accounts receivable (see note 4) Merchandise inventory (see note 5) Vehicles (net) Furniture and fixtures (net) Total Assets 210,045 93,480 302,670 137,171 218.880 962.246 LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Wages payable Accounts payable (see note 6) Shareholders' loan payable (see note 2) Total Liabilities 77,520 38,833 142.500 258,853 SHAREHOLDERS' Equity Share Capital: Common shares, no par value 100,000 shares authorized, 20,000 shares issued Retained Earnings Total Shareholders' Equity Total Liabilities and Shareholders' Equity 228,000 475,393 703,393 962,246 MBAC-5103 MA Assignment 3 II. Financial Information continued 1,940,401 826,372 1.114,029 Mountain Sports Ltd. Income Statement For the Year Ended December 31, 2020 Sales Cost of Goods Sold Gross profit on sales Operating expenses: (See note 1) Advertising (see note 7c) Depreciation Property taxes Rent (see note 1b) Repairs & service expenses Salaries and commissions Utilities Total operating expenses Operating income Interest expenses (See note 2) Income before taxes Income taxes (see note 3) Net income 123,040 21,341 32,000 134,808 94,118 320,708 100,000 826,015 288,014 6,413 281,601 78,849 202,753 MBAC-5103 MA Assignment 3 II. Financial Information continued Mountain Sports Ltd. Income Statement Segmented by Product Line For the Year Ended December 31, 2020 (See note 7) Cross Country Ski Mountain Packages Bicycles Accessories Repair & Service Dept. TOTAL Sales Cost of goods sold Gross Profit 1,940,401 826,372 1.114,029 603,060 271,377 331,683 820,943 377,634 443 309 399,605 159,842 239 763 116,793 17,519 99,274 7,406 5,335 8,000 33,702 Operating expenses (see note 7) Advertising Depreciation Property taxes Rent Repairs & service expense Salaries & commissions Utilities Total Expenses Operating income (loss) Interest expenses (see note 9) Income (Loss) before taxes Income tax (see note 10) Net Income (Loss) 123,040 21,341 32,000 134,807 94,118 320,710 100,000 826,016 288,013 38,240 5,335 8,000 33,702 31,124 83,570 25,000 224,971 106,712 52,056 5,335 8,000 33,702 42,370 83,570 25.000 250,032 193,277 25,339 5,335 8,000 33,702 20,624 83,570 25.000 201,570 38,193 70,000 25.000 149,443 (50, 169) 1,603 1,603 1,603 36,590 6,413 281,600 78,849 202,751 1,603 105,109 24,506 80,604 191,674 33,359 158,314 16,238 20,352 (51,772) 4,746 (56,518) Page 5 of 12 MBAC-5103 MA Assignment III. Notes to Financial Information 1. The following information relates to operating expenses: a) Employees are paid fixed monthly salaries supplemented by a 3% commission on all sales except for the Repair & Service department's sales b) The rent is fixed at $8,000 per month plus 2% of sales. c) Utilities are fixed costs, even though they will increase significantly next year. d) Repairs and Service expense varies with sales activity e) Depreciation and property taxes are fixed costs. f) Advertising budgets are committed to at the beginning of each year. 8) Cost of goods sold always varies with sales. 2. The interest expense represents the 4.5% interest charge on the outstanding shareholders' loan. 3. Income taxes are calculated at 28% of income before taxes. 4. Accounts receivable are generated through a small number of large sales to sports rental operations and school boards. Uncollectible accounts have not been a problem and are negligible 5. Because much of the merchandise inventory is produced in Asia, large orders are placed several months prior to peak seasons. Ordering well in advance saves ordering and shipping costs. 6. Accounts payable to suppliers are promptly paid within 30 days. Page 6 of 12 MBAC-5103 MA Assignment 3 III. Notes to Financial Information continued 7. The following information relates to the income Statement Segmented by Product Line: a) Rent, utilities, depreciation, and property taxes have been allocated equally amongst the 4 product lines. However, if any one of the product lines was eliminated, these costs will remain i. b) Details of salaries and commissions follow (payroll fringe benefits are included): 3% sales commissions were paid on all sales except for the sales of the Repair & Service department ii. The two (2) managers are paid $38,000 each per year. Both are responsible for the company as a whole. Besides sales commissions, the four (4) sales clerks are paid $2,500 each per month. They sell all 3 product lines (skis, bikes and accessories). If any product line is eliminated, the sales clerks will still remain. During the year, the two (2) Repair & Service technicians combined were paid a total salary of $70,000 for the whole year and are allocated entirely to the R&S department. Thus, if the department was discontinued, the technicians would not be required. iv. c) Advertising Mountain Sports Ltd, spent advertising on product lines as follows: For the company as a whole $ 25,000 For the individual product lines: Cross Country Skis $ 38,190 Mountain Bikes 45,600 Accessories 5,700 Repair & Service 8,550 98,040 Total Advertising Cost $123,040 Note: you will observe that the amounts on the income statement differ for the individual product lines due to the allocation of $25,000 in general company advertising costs Page 7 of 12 MBAC-5103 MA Assignment 3 III. Notes to Financial Information continued 8. Interest expense has been allocated equally to each product line & Repair & Service department. Interest expense is considered a financing cost which benefits the whole operation. Therefore, they are not traceable to any individual product line or department. 9. Income taxes have been allocated based on sales. Income taxes are calculated after all costs, including common costs have been deducted. Therefore, they are not traceable to any individual product line or department MBAC-5103 MA Assignment 3 Requirement 3b: Branch Expansion Cash Budget Financing a Bank Loan Assume that the five owners of Mountain Sports Ltd. decide to collectively invest $114,000 of personal funds into the Canmore expansion. Mountain Sports will require an open line of credit up to a maximum of $350,000. It will be necessary to convince the bank manager of this new Canmore branch ability to repay its line credit plus interest within a year. Prepare a Cash Budget for the first year of operation of Canmore by quarter and in total. Show clearly on your budget the quarter(s) in which borrowing will be needed and the quarter(s) in which repayments can be made, as requested by the company's bank. Additional Information: a) Sales by quarter are 15%, 5%, 25%, and 55% of annual sales. b) 60% of all sales are cash. The rest are credit sales which will be collected in the following quarter. c) Merchandise purchases (or cost of goods sold) are all paid in the quarter following purchase. All purchases are made in the same quarter that sales occur. d) The beginning cash balance is $114,000. This is the amount the owners are capable of investing in this new venture. A minimum of $25,000 balance is needed at the end of each quarter. If any interest is payable on credit line borrowings, you may assume a reasonable interest rate. Borrowings are assumed to be at the beginning of the quarter and repayments at the end allowing for a calculation of interest based on the previous quarter's borrowing and is paid at the beginning quarter following the borrowings. e) In year 1, income tax installments of $9,500 per quarter will be made