By buying in bulk, Mindy will get a discount on the price per mug. Mindys cost for 20,000 mugs, all of which must be purchased in January 2020, is $100,000. If Mindy orders less than 20,000 mugs in a given order, the unit cost increases by $1 per mug.

Mindy plans to sell the mugs for $12 each.Mindy thinks it would take two years to sell all of the mugs. She estimates her sales at 12,000 mugs in 2020 and 8,000 in 2021, then 6,000 mugs per year thereafter. She would need to start buying additional inventory towards the end of 2021. If all goes as planned, Mindy will buy another set of 6,000 mugs in late 2021 and every year thereafter.

• Mindy needs to rent some storage space because all 20,000 mugs cannot be stored on the cart or in her dorm room. A small storage unit costs a flat fee of $100 per month.
• Rental of the mobile display cart would be $600 per month.
• Mindy also wants to buy a tent for displaying the merchandise at hockey games and other campus events. The tent will cost $4,000. Mindy believes it will last for 4 years. Mindy can most likely sell the tent for $500 after four years, but will need to buy a new tent at that time.
• To create a good sales atmosphere Mindy wants to decorate her cart and tent with plenty of school flags, banners, pictures and other paraphernalia. She plans to spend $2,000 on these decorations. They will most likely need to be replaced after 2 years.
• Mindy intends to borrow $100,000 from her great aunt Matilda on January 1, 2020. The interest on this loan will be 6 percent and the loan will be repaid in 60 equal monthly payments. The payments are due on the last day of the month starting on January 31, 2020.
• Under her agreement with the University she must pay the University a 10 percent (of revenue) royalty for each mug she sells.
• In addition to the 10 percent royalty, Mindy must also pay a flat annual vendor fee of $4,000 to the school.
• Mindy will work approximately 20 hours a week helping out at the mall during busy hours, at all campus events, managing inventory, paying the bills, etc. She plans to always have one or more employees present. Mindy plans to hire fellow students as contract labor and pay them a commission of $1.50 per mug sold.
• Mindy has been advised to form a new corporation (Mindys Mugs, Inc.) and intends to contribute $20,000 to the business in exchange for 100 percent of the stock. Mindy will not pay herself a salary. Instead of a salary Mindy plans to pay herself a dividend of 50 percent of each years net income.

• Although the type of entity will be determined later, for now assume a flat income tax rate of 20 percent.
• All loan payments are made on the last day of the month
• All rental payments are made on the first day of each month
• Inventory flow is FIFO
• Tents and decorations are purchased on the first day of any given year
• Old tents are sold on the day as new ones are purchased.
• Decorations are written off and disposed of on last day of the 2nd year
• Dividends are declared and paid on the last day of the year

Required

1. Statement of Retained Earnings for the year ending December 31, 2020.
2. Balance Sheet as of December 31, 2020.
3. Statement of Cash Flows for the year ended December 31, 2020 using direct method.
4. Statement of Cash Flows for the year ended December 31, 2020 using indirect method