Big Picture Project 2020 Survey Instructions DUE: March 4/5, 2020 Bert is planning to start a bicycle shop. He is exploring different options for financing his business, and trying to decide whether he should focus more on bicycle repairs and maintenance, selling new bicycles or a balance of both activities. The following transactions and financial statements examine the financial impact of each option he is considering. Plan A Primarily debt funded (from creditors), focus on service (repairs & maintenance); requires more investment in equipment and higher salary expense (for more skilled workers.) Plan B: Primarily equity funded (from stockholders); focus on merchandise sales; incurs higher rent expense for nicer showroom. Planc Balances debt and equity funding. Balances earning revenue from service and merchandise sales Requirements: 1. List the annual transactions for your plan in the Horizontal Transaction Analysis table. (20 points) - Indicate the increase / (decrease) to each account involved in the transaction - Identify the type of cash flow activity for all cash transactions (OA Operating. IA Investing. FA Financing) - Record the Closing Entry for each year by zeroing out the temporary accounts - Calculate the total in each column at the end of the each year. - Permanent account balances will carry forward from one year to the next, so year end totals will accumulate through the years. 2. Use the Horizontal Transaction Analysis balances and the details from the transactions each year to create the following Financial Statements for each year (30 points) Income Statement/Statement of Stockholders Equity / Balance Sheet/Statement of Cash Flows 3. Use the financial statement information and the transaction details to answer the following questions Show all calculations to support your response. (10 points) - What is the remaining balance of Notes Payable at 1/1/Yr. 5? If another 25% repayment is made in Yr. 5. what is the interest expense for Yr. 5? - What is the book value of the equipment at 12/31/Yr. 4? If the equipment is sold for $5,000 cash on 1/1/Yr. 5, how much gain or loss) would there be? - What is the Debt to Assets Ratio (Total Liabilities/Total Assets) for Year 1 & Year 4? - What is the Equity to Assets Ratio (Total Stockholders Equity / Total Assets) for Year 1 & Year 47 4. Submit the project by Wednesday 3/4, or Thursday 3/5 - Must be handwritten and physically turned in (no email submissions) - Turn in the following - Horizontal Transaction Analysis - Financial Statements - Calculations and responses to questions Big Picture Project Transactions Plan A 3-1 Purchase Inventory for $3,000 cash 3-2 Revenue Growth +20% Service Revenue $47,500 Sales Rev $4,000; COGS $2,000 3-3 Debt Repayment 1/4 of Original Note 3-4 Operating Expenses Salaries $10,600 Rent $6,000 Insurance & Utilities $4,000 Advertising $1,000 Maintenance $5,000 Total Operating Exp. $26,600 Depreciation Exp. = equip. cost x 1/5 Interest Exp. = Note Pay. X 8%x12/12 3-5 Dividend Payment Common Stock x 10% 4-1 Purchase Inventory for $3,000 cash 4-2 Revenue Growth +15% Service Revenue $54,600 Sales Rev $4,600; COGS $2,300 4-3 Debt Repayment 1/4 of Original Note 4-4 Operating Expenses Salaries $12,200 Rent $6,000 Insurance & Utilities $4,000 Total Operating Exp. $22,200 Depreciation Exp. = equip.costx 1/5 Interest Exp. = Note Pay. x 8%x12/12 4-5 Dividend Payment Common Stock x 10% Big Picture Project Transactions Plan A 1-1 Start Up Funding Sign Note for $55,000 @8% Issue Stock for $8,000 1-2 Purchase Equipment @1/1 Purchase a workbench and tools for $35,000 cash; SL Depreciation 5 yr. useful life, $o salvage value 1-3 Purchase Inventory for $4,000 cash 1-4 Service & Sales Revenue Service Revenue $36,000 Sales Rev $3,000; COGS $1,500 1-5 Operating Expenses Salaries $8,000 Rent $6,000 Insurance & Utilities $4,000 Total Operating Exp. $18,000 Depreciation Exp. = equip. cost x 1/5 Interest Exp. - Note Pay. x 8%x12/12 2-1 Purchase Inventory for $2,500 cash 2-2 Revenue Growth +10% Service Revenue $39,600 Sales Rev $3,300; COGS $1,650 2-3 Operating Expenses Salaries $8,800 Rent $6,000 Insurance & Utilities $4,000 Total Operating Exp. $18,800 Depreciation Exp. = equip. cost x 1/5 Interest Exp. Note Pay.x8%x12/12 2-4 Dividend Payment Common Stock x 5% Big Picture Project 2020 Survey Instructions DUE: March 4/5, 2020 Bert is planning to start a bicycle shop. He is exploring different options for financing his business, and trying to decide whether he should focus more on bicycle repairs and maintenance, selling new bicycles or a balance of both activities. The following transactions and financial statements examine the financial impact of each option he is considering. Plan A Primarily debt funded (from creditors), focus on service (repairs & maintenance); requires more investment in equipment and higher salary expense (for more skilled workers.) Plan B: Primarily equity funded (from stockholders); focus on merchandise sales; incurs higher rent expense for nicer showroom. Planc Balances debt and equity funding. Balances earning revenue from service and merchandise sales Requirements: 1. List the annual transactions for your plan in the Horizontal Transaction Analysis table. (20 points) - Indicate the increase / (decrease) to each account involved in the transaction - Identify the type of cash flow activity for all cash transactions (OA Operating. IA Investing. FA Financing) - Record the Closing Entry for each year by zeroing out the temporary accounts - Calculate the total in each column at the end of the each year. - Permanent account balances will carry forward from one year to the next, so year end totals will accumulate through the years. 2. Use the Horizontal Transaction Analysis balances and the details from the transactions each year to create the following Financial Statements for each year (30 points) Income Statement/Statement of Stockholders Equity / Balance Sheet/Statement of Cash Flows 3. Use the financial statement information and the transaction details to answer the following questions Show all calculations to support your response. (10 points) - What is the remaining balance of Notes Payable at 1/1/Yr. 5? If another 25% repayment is made in Yr. 5. what is the interest expense for Yr. 5? - What is the book value of the equipment at 12/31/Yr. 4? If the equipment is sold for $5,000 cash on 1/1/Yr. 5, how much gain or loss) would there be? - What is the Debt to Assets Ratio (Total Liabilities/Total Assets) for Year 1 & Year 4? - What is the Equity to Assets Ratio (Total Stockholders Equity / Total Assets) for Year 1 & Year 47 4. Submit the project by Wednesday 3/4, or Thursday 3/5 - Must be handwritten and physically turned in (no email submissions) - Turn in the following - Horizontal Transaction Analysis - Financial Statements - Calculations and responses to questions Big Picture Project Transactions Plan A 3-1 Purchase Inventory for $3,000 cash 3-2 Revenue Growth +20% Service Revenue $47,500 Sales Rev $4,000; COGS $2,000 3-3 Debt Repayment 1/4 of Original Note 3-4 Operating Expenses Salaries $10,600 Rent $6,000 Insurance & Utilities $4,000 Advertising $1,000 Maintenance $5,000 Total Operating Exp. $26,600 Depreciation Exp. = equip. cost x 1/5 Interest Exp. = Note Pay. X 8%x12/12 3-5 Dividend Payment Common Stock x 10% 4-1 Purchase Inventory for $3,000 cash 4-2 Revenue Growth +15% Service Revenue $54,600 Sales Rev $4,600; COGS $2,300 4-3 Debt Repayment 1/4 of Original Note 4-4 Operating Expenses Salaries $12,200 Rent $6,000 Insurance & Utilities $4,000 Total Operating Exp. $22,200 Depreciation Exp. = equip.costx 1/5 Interest Exp. = Note Pay. x 8%x12/12 4-5 Dividend Payment Common Stock x 10% Big Picture Project Transactions Plan A 1-1 Start Up Funding Sign Note for $55,000 @8% Issue Stock for $8,000 1-2 Purchase Equipment @1/1 Purchase a workbench and tools for $35,000 cash; SL Depreciation 5 yr. useful life, $o salvage value 1-3 Purchase Inventory for $4,000 cash 1-4 Service & Sales Revenue Service Revenue $36,000 Sales Rev $3,000; COGS $1,500 1-5 Operating Expenses Salaries $8,000 Rent $6,000 Insurance & Utilities $4,000 Total Operating Exp. $18,000 Depreciation Exp. = equip. cost x 1/5 Interest Exp. - Note Pay. x 8%x12/12 2-1 Purchase Inventory for $2,500 cash 2-2 Revenue Growth +10% Service Revenue $39,600 Sales Rev $3,300; COGS $1,650 2-3 Operating Expenses Salaries $8,800 Rent $6,000 Insurance & Utilities $4,000 Total Operating Exp. $18,800 Depreciation Exp. = equip. cost x 1/5 Interest Exp. Note Pay.x8%x12/12 2-4 Dividend Payment Common Stock x 5%