Help I bought a retail store a year ago I borrowed $400,000 from the bank to buy the business Interest is $40,000 per year The previous owner, Sally, showed me all the books before I bought it and it looked like a good deal She and her husband had been running it themselves last year they made $180,000 before taxes but they were planning to retire I didnt want to quit my teaching job, so I figured that, if I got a competent manager and a couple of clerks and paid them about $100,000 per year in total, they could operate it for me and Id have $80,000 left over After paying the interest on the loan, I estimated Id make $40,000 per year before taxes However, things dont seem to be going right In 2018, Sally had the following results (shes an honest woman) Gross Sales $1,050,000 Sales Returns 100,000 Gross Purchases 600,000 Purchase Allowances 50,000 Operating Expenses 200,000 (Sally and her husband didnt draw any salary they just kept the net income, after taxes ) Inventory, Jan 1, 2018 220,000 Inventory, Dec 31, 2018 200,000 Here are the numbers for 2019 Gross Sales $1,100,100 Sales Returns 100,100 Gross Purchases 700,000 Purchase Allowances 60,000 Operating Expenses 200,000 (excluding payroll and interest) Payroll Expense 100,000 Interest Expense 40,000 Inventory, Dec 31, 2019 150,000 For some reason Ive had to borrow $30,000 more from my brother in law because I didnt have enough to pay the bank interest on the loan Sales have obviously increased Where did the money go The manager says he doesnt know whats wrong When I hired him, I told him our normal gross profit margin was about 40 Youve studied accounting Whats happening Your Answer Dear Harry, Ive studied the information you sent me and have prepared the attached comparative income statements for the years 2019 and 2018, which I attach to this letter for your review In my expert opinion, there are a number of possible reasons why your business has not met your expectations, even allowing for the salaries and interest you knew you would have to pay The possible explanations are (continue on other pages) Help I bought a retail store a year ago I borrowed $400 000 from the bank to buy the business Interests $40 000 per year The previous owner, Saly, showed me all the books before I bought it and it looked like a good deal She and her husband had been running themselves last year they made $180,000 before but they were planning to retire I didn't want to quit my teaching , so I figured that got a competent manager and a couple of clerks and paid them about $100 000 per year in they could operate it for me and I have $80 000 left over After paying the interest on the loan, l estimated I'd make $40 000 per year before taxes However, things don't seem to be going right In 2018, Sally had the following results (she's an honest woman) Gross Sales $1 050 000 Sales Returns 100 000 Gross Purchases 600 000 Purchase Allowances 50 000 Operating Expenses 200,000 (Sally and her husband clic draw any salary they just kept the net income, after faxes ) Inventory, Jan 1, 2018 220,000 Inventary, Dec 31, 2018 200,000 Here are the numbers for 2019 $1,100,100 100 100 700 000 60 000 Gross Sales Sales Returns Gross Purchases Purchase Allowances Operating Experises Payo Expanse Interest Expense Inventory, Dec 31, 2019 (excluding payrol and interest 200,000 100,000 40,000 150,000 For some reason I've had to borrow $30 000 more from my brother in law because I didn't have enough to pay the bank interest on the loan Sales have obviously increased Where did the money go The manager says he doesn't know what's wrong When I hired him, I told him our normal gross profit margin was about 40 You've studied accounting What's happening Your Answer Dear Harry, I've studied the information you sent me and have prepared the attached comparative income statements for the yeary 2019 and 2018, which I attach to this letter for your review In my expert opinion, there are a number of possible reason why your business has not met your expectations even allowing for the salaries and interest you knew you would have to pay The possible explanations are continue on other pages)

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Help! I bought a retail store a year ago. I borrowed $400,000 from the bank to buy the business. Interest is $40,000 per year. The

Help!

I bought a retail store a year ago. I borrowed $400,000 from the bank to buy the business. Interest is $40,000 per year. The previous owner, Sally, showed me all the books before I bought it and it looked like a good deal. She and her husband had been running it themselves last year they made $180,000 before taxes but they were planning to retire. I didnt want to quit my teaching job, so I figured that, if I got a competent manager and a couple of clerks and paid them about $100,000 per year in total, they could operate it for me and Id have $80,000 left over. After paying the interest on the loan, I estimated Id make $40,000 per year before taxes.

However, things dont seem to be going right.

In 2018, Sally had the following results (shes an honest woman):

Gross Sales $1,050,000 Sales Returns 100,000 Gross Purchases 600,000 Purchase Allowances 50,000 Operating Expenses 200,000 (Sally and her husband didnt draw any salary; they just kept the net income, after taxes.) Inventory, Jan 1, 2018 220,000 Inventory, Dec 31, 2018 200,000

Here are the numbers for 2019:

Gross Sales $1,100,100 Sales Returns 100,100 Gross Purchases 700,000 Purchase Allowances 60,000 Operating Expenses 200,000 (excluding payroll and interest) Payroll Expense 100,000 Interest Expense 40,000 Inventory, Dec 31, 2019 150,000

For some reason Ive had to borrow $30,000 more from my brother-in-law because I didnt have enough to pay the bank interest on the loan. Sales have obviously increased. Where did the money go?

The manager says he doesnt know whats wrong. When I hired him, I told him our normal gross profit margin was about 40%. Youve studied accounting. Whats happening?

Your Answer:

Dear Harry,

Ive studied the information you sent me and have prepared the attached comparative income statements for the years 2019 and 2018, which I attach to this letter for your review. In my expert opinion, there are a number of possible reasons why your business has not met your expectations, even allowing for the salaries and interest you knew you would have to pay.

The possible explanations are (continue on other pages) image text in transcribed

Help! I bought a retail store a year ago. I borrowed $400.000 from the bank to buy the business Interests $40.000 per year. The previous owner, Saly, showed me all the books before I bought it and it looked like a good deal. She and her husband had been running themselves -last year they made $180,000 before but they were planning to retire. I didn't want to quit my teaching , so I figured that got a competent manager and a couple of clerks and paid them about $100.000 per year in they could operate it for me and I have $80 000 left over. After paying the interest on the loan, l estimated I'd make $40.000 per year before taxes However, things don't seem to be going right. In 2018, Sally had the following results (she's an honest woman) Gross Sales $1.050.000 Sales Returns 100.000 Gross Purchases 600.000 Purchase Allowances 50.000 Operating Expenses 200,000 (Sally and her husband clic draw any salary: they just kept the net income, after faxes.) Inventory, Jan 1, 2018 220,000 Inventary, Dec 31, 2018 200,000 Here are the numbers for 2019: $1,100,100 100 100 700.000 60.000 Gross Sales Sales Returns Gross Purchases Purchase Allowances Operating Experises Payo Expanse Interest Expense Inventory, Dec 31, 2019 (excluding payrol and interest 200,000 100,000 40,000 150,000 For some reason I've had to borrow $30.000 more from my brother-in-law because I didn't have enough to pay the bank interest on the loan. Sales have obviously increased. Where did the money go? The manager says he doesn't know what's wrong. When I hired him, I told him our normal gross profit margin was about 40%. You've studied accounting What's happening? Your Answer Dear Harry, I've studied the information you sent me and have prepared the attached comparative income statements for the yeary 2019 and 2018, which I attach to this letter for your review. In my expert opinion, there are a number of possible reason why your business has not met your expectations even allowing for the salaries and interest you knew you would have to pay. The possible explanations are... [continue on other pages)