BAT4M Culminating Activity ICE CREAM DREAMS Cynthia King is a grade 12 high school student in Muskoka, Ontario. She has worked very hard in school this past year and was delighted in March to find out that she was accepted to her first choice university. Cynthia wants to become a Chartered Professional Accountant (CPA) and eventually run her own business. Cynthia realizes the next four years will be expensive but she has a plan. There are two local ice-cream parlors for sale for the same amount. Both operate between May and late August. Trevor King, Cynthias dad, is a CPA. He is proud of Cynthias accomplishments and has performed a preliminary analysis of both companies. He concludes that he can purchase both companies and sell them in four years at approximately the same amount as the purchase price. Cynthia estimates she will need a total of $15,000 each year for tuition, books, residence and other living costs. Her dad has agreed to purchase one of the businesses, providing she presents him with a solid business analysis. Cynthia has researched both companies and found out the following information in the next two pages. Cynthia was reading the local paper on the weekend and found out that scoopable ice cream the ice cream sold in tubs is the biggest segment within total frozen desserts, but the industry is starting to see a shift to things customers perceive to be healthy for them, such as frozen yogurt and frozen flavoured ices. Cynthia is very excited about this possible new venture. Shes even convinced her younger brother and sister to work for free ice cream, if her dad buys either business. With their help, she wouldnt need other employees and would incur no wage expenses.\

Yogi loves yogurt-DATA Income information (unaudited)

For the 4 month period ending August 31st:

Sales: Year 1) 21,000 --Year 2) 27,000-- Year 3) 30,000

Expenses:

Cost of Product:) Year 1) 9,450-- Year 2) 12, 150-- Year 3) 13,500

Rent ::Year 1)1,000-- Year 2) 1,200-- Year 3) 1,300

Utilities (including phone,hydro): Year 1) 800-- Year 2) 900-- Year 3) 1,000

Depreciation (refrigerator): Year 1) 500-- Year 2) 500-- Year 3) 500 Wages: Year 1) 3,450-- Year 2) 3,700-- Year 3) 4,000

Total expenses: Year 1) 15,200 -- Year 2) 18,450 --Year 3) 20,300

Gain from computer sale (year 3) +700

Net income: Year 1)5,800-- Year 2) 8,550 -- Year 3) 10,450

BALANCE SHEET-YOGI Loves yogurt Asssets- Cash-Year 2) 4,500/Year 3) 5,000 Supplies- Year 2)700/ Year 3) 800 Inventory-Year 2) 4,500/Year 3) 4,000 Equipment (net amount) Year 2) 10,000/ Year 3)10,000 All assets-Year 1)19,700/Year 2)19,800 Liabilities and Equity Accounts Payable Year 2) 2,500/Year 3) 2,000 Bank Loan Year 2) 7,500/Year 3)8,000 Total Liabilities- Years 2 and 3) 10,000 Equity- Year 2) 9,700/Year 3) 9,800 Total liabilities&equity- Year 2) 19,700 Year 3) 19, 800 -

The business began in Year 1 - They offer 10 flavours of yogurt. Customers can choose from 8 different fruits and 2 basic flavours (vanilla and chocolate). They order vanilla frozen yogurt blocks and prepare the flavours based on the customers request. The fruit is purchased frozen from another supplier. Often times when they run out of frozen fruit, fresh fruit is used. Fresh fruit is avoided due to the high cost. - The business is owned by Yogi Yumyum. He is only involved in the administration of the business and hires employees to work in the store. - This store is located on a very busy street in Muskoka. There is a public parking lot across the street. - The rent is negotiated on an annual basis. The annual rent for Year 3, Year 2 and Year 1 was $3900, $3600 and $3000 respectively. The amounts shown in the financial information are for four months. - They have two suppliers for the yogurt product and frozen fruit. They have been able to reduce the cost over time due to volume discounts. - The depreciation is for a refrigerator that was purchased brand new in Year 1. - The company sold an old computer during Year 3. Since it wasnt part of the normal operations of the business, it was shown on a separate line

. Muskokas Original Ice Cream Income Information (unaudited) For the 4 month period ending 8/31

Sales) Y1-36,000/Y2-33,000/Y3-30,000 Expenses Cost of product) Y1-18,000/Y2-15,000/Y3-13,000 Rent) Y1-1,000/Y2-1,000/Y3-1,000 utilities (incl.phone and hydro) Y1-300/Y2-400/Y3-500 Depreciation(fridge)Y1-300/Y2-300/Y3-300 Wages) Y1-1,000/Y2-1,000/Y3-1,000 Product write off Year 2-3,000 Net Income) Y1-15,400/ Y2-12,300/ Y3- 14,200

Muskokas original Ice Cream Balance sheet (unaudited) August 31 Assets Cash) Year 2-4,000/ Year 3-3,000 Supplies) Year 2-600/ Year 3- 400 Inventory) Year 2-4,500/ Year 3-5,000 equipment(net amount) Year 2-10,000/ Year 3-9,000 All Assets)Year 2-19,100/Year 3- 17,400 LIABILITIES and EQUITY Accounts payable)Year 2-3,000/ Year 3-3,500 Bank Loan)Year 2-7,000/Year 3-6,000 Total Lia)Year 2-10,000/ Year 3-9,500 Equity)Year 2-9,100/Year 3-7,900 Total lia&eq)Year 2-19,100/Year 3-17,400 -

This business has been around for 45 years. - There have been many owners over the years. - The most current owner, Paul Shoemaker, owned and operated the business seven days a week. He hired 1 part-time employee to help with weekends and evenings. - The store is located on a residential street which has only street parking. - The store offers 35 flavours of ice cream. All ice cream is purchased by the tub. The supplier makes deliveries from Monday to Friday. There is a 24-hour turn-around for all deliveries. - During Year 1, the business entered a 5-year lease at $3000/year. The amounts shown in the financial information are for four months. - The owner believes that sales dropped in Year 3 due to an unusually rainy summer. - The refrigerator is over 20 years old. Paul has had some trouble with it over the past few summers but was able to get it repaired by a close friend in exchange for some ice cream. - This store used to be very popular but people got frustrated because they often ran out of the popular flavours. - The business used to sell ice cream accessories such as decorative cups, ice cream scoopers, fridge magnets etc. These products were not selling well so all the merchandise was donated to a local school for a fundraiser. The cost of the product was shown as a product write off in Year 2. Since it wasnt part of the normal operations of the business, it was shown on a separate line.

Place yourself in Cynthias shoes & prepare an analysis regarding the possible purchase of the businesses. Write a business report addressed to your father. The report should be in Google Docs or Word format and may contain Google Sheets or Excel. Hand into Culminating Task Part 1 Assignment space. Step 1: Business Overview 10% State your objective. Identify & explain at least 4 business risks that you should consider when buying and operating an ice cream business. Step 2: Qualitative (Non-financial) Analysis 15% State the advantages and disadvantages for each company. Be sure to provide concrete evidence to support your point. Step 3: Quantitative (Financial) Analysis 40% Prepare a horizontal and vertical analysis for each business for the 3 years. Perform an analysis of those results for each company stating all observations. Calculate any relevant ratios for each company and report your findings. Step 4: Recommendation 15% Outline your final recommendation on which business to purchase. Include detailed information to support your recommendation. Part 2: Internal Controls 20% (See Rubric) Cynthia is still planning on having her sister and brother work in the ice cream store for free ice cream. As part of her financing agreement, she has promised to implement proper internal controls to ensure the assets of the business are properly safeguarded. As Cynthia, you are going to write a business memo to your financer, detailing at least 3 internal controls that will be in place to protect the company. The memo should be in Google Docs or Word format. Hand into Culminating Task Part 2 Assignment space.