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ACCT-1071 Case Study #2 - Vera's Magic Garden Ltd. Vera's Magic Garden Ltd. Balance Sheet December 31 2018 2019 2020 2021 2022 Assets Current Assets Cash $ $ 43,273 $ 172,204 Accounts receivable 125,000 130,000 145,000 140,000 146,500 Interest receivable 28.000 Notes receivable 10,000 20.000 10,000 5,000 Prepaid expenses 11,000 11.000 12.000 12,000 12,000 Supplies 500 400 300 350 450 Inventories 243,000 212,000 151,000 107,500 43,500 Total Current Assets $ 379,500 $ 363,400 $ 356,300 $ 313,123 $ 379,654 Property, Plant and Equipment Land 813,000 813,000 813,000 813,000 813,000 Buildings (net of depreciation) 940,000 920,000 900,000 880,000 860,000 Equipment (net of depreciation) 210,000 180,000 150.000 120,000 90,000 Total Property, Plant and Equipment 1,963,000 1,913,000 1,863,000 1,813,000 1,763,000 Total Assets $ 2,342,500 $ 2,276,400 $ 2,219,300 $ 2,126,123 $ 2,142,654 Liabilities and Shareholders' Equity Current Liabilities Bank indebtedness $ 32,610 $ 96,119 $ 5,000 $ Accounts payable 24.000 29,000 36,300 30,000 31,500 Interest payable 136,640 113,640 90,640 67,640 44,640 Income tax payable 49.100 65,190 76,340 90.116 100,787 Current portion of Mortgage payable 50,000 50,000 50,000 50,000 50,000 Current portion of Loan payable 200.000 200,000 200,000 200.000 200,000 Deferred revenue 68,000 Total Current Liabilities $ 492,350 $ 553,949 $ 526,280 $ 437,756 $426,927 Non-Current Liabilities Mortgage payable 539,000 489,000 439,000 389,000 339,000 Loan payable 813,000 613,000 413.000 213.000 13,000 Total Non-Current Liabilities 1,352,000 1,102,000 852,000 602,000 352,000 Total Liabilities 1,844,350 1,655,949 1,378,280 1,039,756 778,927 Shareholders' Equity Common shares 163,000 163,000 213,000 213,000 213,000 Retained earnings 335.150 457,451 628,020 873,367 1.150,727 Total Shareholders' Equity 498,150 620,451 841,020 1,086,367 1,363,727 Total Liabilities and Shareholders' Equity $ 2,342,500 $2,276,400 $ 2,219,300 $ 2.126,123 $ 2,142,654 ACCT-1071 Case Study #2 - Vera's Magic Garden Ltd. Appendix B: Comparative Financial Statements (available in Excel) Vera's Magic Garden Ltd. Comparative Income Statement Year Ended December 31 2018 2019 2020 2021 2022 Sales revenue Cost of goods sold Gross profit $ 1,528,013 S 1,591,680 S 1,658,000 S 1,740,900 $ 1,827,945 580,645 588,922 622.000 652,838 703.759 947,368 1,002,758 1,036,000 1,088,063 1,124,186 Operating expenses: Selling expense Salaries & wages expense Utilities expense Property tax expense Insurance expense Depreciation expense Supplies expense Interest expense General & administrative expense Total operating expenses 95,550 216,899 34,398 34,000 22,000 50,000 15,288 136,640 146,192 750,966 98,000 222,460 35,280 35,000 22,000 50,000 15,680 113,640 149,940 742,000 100,000 227,000 36,000 35,000 23,000 50,000 16,000 90,640 153,000 730,640 103.000 233,810 37,080 38,000 24,000 50,000 16,480 67,640 157,590 727,600 106,090 240,824 38,192 38,000 24,000 50,000 16,974 44,640 162,318 721,039 income before income tax Income tax expense Net income 196,402 49,100 147,301 $ 260,758 65,190 195,569 S 305,360 76,340 229,020 S 360,463 90,116 270,347 S 403,147 100,787 302,360 S ACCT-1071 Case Study #2 - Vera's Magic Garden Lid. Appendix A: Notes from Client Meeting The following information was provided by the owner of Vera's Magic Garden Ltd. detailing expected sales, collections, purchases, expenditures, payments and financing for the fiscal year, January 01 - December 31, 2023. Sales Sales are expected to increase by 5% over 2022 and historically have been earned as follows: January - March, October & November 0% April 15% May 30% June 25% July 10% August & September (each month) 5% December 10% Total sales 100% Most sales are cash (30%) and credit card (60%); however, we do some corporate sales (10%) that are billed and collected the following month. Credit card sales are deposited directly to our bank account the next business day less a 4% transaction fee. The only exception to this pattern is December with sales of holiday wreathes and arrangements that are mainly corporate (80%) with the balance from cash sales. Purchases & Cost of Goods Sold Purchases are approximately 35% of total sales. Orders are made in February and a 20% deposit is payable in March. Approximately 60% of orders arrive during April and the balance arrive in early May with the balance owing paid 60 days following receipt. An additional purchase of $35.000 is planned for November for the holiday season and is payable the following January Although purchases are approximately 35% of sales, cost of goods sold is approximately 38% of sales due to plant loss and end-of-season scrap. Annuals not sold during the season are scrapped as the cost of overwintering cannot be recovered, therefore, inventory consists of pats, soil, fertilizer, trees, shrubs, and perennials that are overwintered for sale next year. 3 ACCT-1071 Case Study #2 - Vera's Magic Garden Ltd. Expenses & Financing 1. Principal payments of $200,000 plus 10% interest on the year-end loan balance is payable on January 01 each year. 2. Principal payments of $50,000 plus 6% interest on the year-end mortgage balance is payable on January 01 each year. 3. We have negotiated an increase of $450,000 to the existing loan to finance new greenhouses that will be built during the slow period of August - October 4. The insurance policy is renewed on July 1st each year at a cost of $24,000. 5. Property taxes for 2023 will be $38,000 paid in January 6. Salaries and wages are expected to increase to $240.000, paid as follows: 1.50% of salaries and wages expense is incurred during peak season April - July, paid evenly throughout each month. ii. 30% of salaries and wages expense is incurred during March, August, September, and October, paid evenly throughout each month. ii. 20% of salaries and wages expense is incurred during January, February, November, and December, paid evenly throughout each month. 7. All other expenses, other than depreciation and income tax, are expected to increase by 3%. 8. Selling expense, supplies expense and general/administrative expense follow the same pattern as salaries and wages expense. 9. All other expenses, other than income tax are incurred and paid evenly throughout the year. Income tax is paid in June based on the prior year's corporate tax retum. 10. Dividends of $30,000 will be paid in December. 11. The corporation plans to buyout the shares of one of the original investors at a cost of $200,000 in June. 12. Vera's has access to a $500,000 line of credit to cover short-term cash needs at an annual interest rate of 6%. Excess cash is immediately used to repay the line of credit balance and interest charges are payable the following month on the prior month's ending balance. /5 /16 A monthly sales budget is prepared and properly calculated. A monthly schedule of cash collections is properly prepared and calculated. A monthly cash budget is properly prepared and calculated with supporting schedules in labeled and referenced appendices. /63