Ch. 17 Accounting Exercise Kelsey's Coffee Cart As you know from discussion in Chapter 17, the basic accounting equation is Assets = Liabilities + Owner's Equity. This assignment will ask you to take information from a real-world problem and to fill out the blank in the balance sheet (see the balance sheet provided in the next page). Kelsey has decided to open a coffee cart outside of the college library. She works out an arrangement to have the space rent free, and they even have a cart she can use! Excited to be striking out on her own, Kelsey empties her bank account and puts $2,500 into the business. She calls her Aunt Loren, who agrees to loan her $5,000. Aunt Loren tells Kelsey that the loan is interest free and that she doesn't have to begin making payments on the loan for at least a year. Kelsey heads to the restaurant supply shop, where she has the following expenses. Kelsey buys an Italian coffee machine for $4,000, and $1,425 worth of inventory. She brings everything back to the library and sets up her coffee cart. In her first month of business, she has gross sales of $1,800, and uses $750 worth of her inventory. She's the only employee. In month two, Kelsey decides to aggressively market her business. She hires Emma as a part time employee, and pays her $675 per month. Kelsey needs the help, as her plan is to add muffins, bagels and cookies to the cart. Kelsey heads back to the restaurant supply store and buys $500 worth of equipment ($275 for a small freezer, and $225 for a convection oven). She also buys another $1,100 worth of supplies. Kelsey's month two revenues are $2,600, and she uses $1,350 worth of her inventory. In month three, Kelsey rolls right along. She pays Emma $950 in wages, and has $2,750 in sales. Kelsey's supply purchases total $1,400, and she uses $1,500 of her supplies. She also has to throw away $150 worth of spoiled goods. Based on the above information, the balance sheet was calculated for three months (see the balance sheet presented in next page). Questions: 1. Using the information provided in the balance sheet, please calculate the values from A to F (the highlighted parts in green in the balance sheet). (3 pts/ea) 2. What is the ending balance for cash for months 1, 2, and 3? (3 pts/ea) 3. What is Kelsey's profit for month 1, month 2, and month 3? (3 pts/ea) 4. Does Kelsey make profits every month? (3 pts) 5. If she makes profits, does the profit increase or decrease? (3 pts) 6. Would you recommend to Kelsey to continue running her business? Why or why not? (8 pts) Coffee Shop Month 1 Assets Equipment Inventory Liabilities A/P Loans O/E Equity 2,500 5,000 Cash Loan Coffee Equip Supplies Sales Cash 2,500 5,000 -4,000 -1,425 1,800 4,000 A -750 1050 Sub Totals 3,875 4,000 675 0 5,000 B Cash 3,875 Assets Equipment Inventory 4,000 675 Liabilities A/P Loans 0 5,000 O/E Equity 3,550 Month 2 Beginning Balance Cash Loan Coffee Equip Supplies Sales Wages -500 -1,100 2,600 -675 1,100 -1,350 1,250 D Sub Totals 4,200 4,500 G 0 0 5,000 4,125 Month 3 Cash 4,200 Assets Equipment 4,500 Inventory 425 Liabilities A/P Loans 0 5,000 O/E Equity E Beginning Bal. Cash Coffee Equip Supplies Sales Wages Waste Sub Totals -1,400 2,750 -950 1,400 -1,500 1,250 F -150 4,275 - 150 175 4,600 4,500 0 5,000