Company XYZ is a footwear manufacturer. The company sells these products for high sales prices. Though the company was highly profitable in the past, is facing steeply rising costs in raw materials. The company expects to have $100,000 in forecasted revenues for fiscal year 2021, but net income on those revenues will only be $13,000. It expects continued rising costs in raw materials and is focusing on ways to decrease costs of production. The Chairman is interested in operating with economies of scale, suggesting that the more volume the company produces, the cheaper the costs for each unit of goods produced. Current Balance Sheet Assets Liabilities $ S Cash Accounts Receivables 25.000 6.000 Accounts Payable Long-term Loan 6,000 20.000 Owner's Equity Capital Stock 5.000 Total Assets: $ 31,000 Total Liabilities & Owner's Equity: $ 31,000 Make one strategic decision about your busin from each of the three categories low: Asset Purchase, Assume a Liability, Equity Transaction. Then, prepare all journal entries necessary to record the strategic decisions of the business and describe how this transaction impacts the company's Accounting Equation. Also prepare an adjusted Balance Sheet for the company immediately following the transaction as well as a year over year trend for future revenues and net incomes for the following two years (be sure to include why) Strategic Decisions: Asset Purchase: 1. Purchase $3,000 of merchandise inventory to be resold to customers 2. Rent a factory or warehouse for $12,000 to start future production (If current cash does not cover the costs, this choice is contingent on obtaining either an equity investment or from the proceeds of a loan.) 3. Pay an independent contractor $6,000 to build/update your company's website (The amount billed by the contractor will be classified as an asset.) Assume a Liability: 1. Take out a $50,000 loan from potential creditor A with repayment terms of $60,000 due in 3 years. 2. Take out a $50,000 loan from potential creditor B with $50,000 due in 4 years and $2,000 in interest payments due each year until the loan is fully paid. Equity Transaction: 1. Sell 25% of the business to potential investor A for a valuation of $40,000. 2. Sell 10% of the business to potential investor B for a valuation of $12,000 Company XYZ is a footwear manufacturer. The company sells these products for high sales prices. Though the company was highly profitable in the past, is facing steeply rising costs in raw materials. The company expects to have $100,000 in forecasted revenues for fiscal year 2021, but net income on those revenues will only be $13,000. It expects continued rising costs in raw materials and is focusing on ways to decrease costs of production. The Chairman is interested in operating with economies of scale, suggesting that the more volume the company produces, the cheaper the costs for each unit of goods produced. Current Balance Sheet Assets Liabilities $ S Cash Accounts Receivables 25.000 6.000 Accounts Payable Long-term Loan 6,000 20.000 Owner's Equity Capital Stock 5.000 Total Assets: $ 31,000 Total Liabilities & Owner's Equity: $ 31,000 Make one strategic decision about your busin from each of the three categories low: Asset Purchase, Assume a Liability, Equity Transaction. Then, prepare all journal entries necessary to record the strategic decisions of the business and describe how this transaction impacts the company's Accounting Equation. Also prepare an adjusted Balance Sheet for the company immediately following the transaction as well as a year over year trend for future revenues and net incomes for the following two years (be sure to include why) Strategic Decisions: Asset Purchase: 1. Purchase $3,000 of merchandise inventory to be resold to customers 2. Rent a factory or warehouse for $12,000 to start future production (If current cash does not cover the costs, this choice is contingent on obtaining either an equity investment or from the proceeds of a loan.) 3. Pay an independent contractor $6,000 to build/update your company's website (The amount billed by the contractor will be classified as an asset.) Assume a Liability: 1. Take out a $50,000 loan from potential creditor A with repayment terms of $60,000 due in 3 years. 2. Take out a $50,000 loan from potential creditor B with $50,000 due in 4 years and $2,000 in interest payments due each year until the loan is fully paid. Equity Transaction: 1. Sell 25% of the business to potential investor A for a valuation of $40,000. 2. Sell 10% of the business to potential investor B for a valuation of $12,000
