MBA 5850 Case 1

Use the following information to prepare this case exercise.

Criteria:

1. Excel: all information presented in Excel.

2. Formatting:

a. use correct accounting formats for the prepared financial statements, including headers and sub-headers. Use chapter #1 and/or #5 examples to guide you.

b. Include only those accounts utilized in this exercise.

c. To increase presentation conciseness, worksheets must be formatted to fit into an 8.5 x 11 inch printable page. Landscape is acceptable.

3. Formulas: all calculations must be indicated using Excel formula functions

Requirements: Use the following information to prepare the case.

1. Record all transactions using the financial transaction horizontal model. Use the example template below to format your transaction analysis a. Show ending balance values for each account

2. Complete the following requirements:

a. Prepare and format the following statements for the first month of operations.

i. an income statement

ii. balance sheet

b. Compute the following ratios:

i. Net Profit Margin

ii. Current ratio

iii. Asset turnover ratio (use ending total assets balance, not average assets)

c. Provide a qualitative evaluation of these three ratios. Include in your analysis these items: What does each illustrate, specifically, to the companys performance? What is the impact of having just one month of business on any/all of the ratios? Based on the given information, what is the reliability of these values, and what would strength the signal provided by the ratios?

Excel horizonal transaction template example: Check figure:

Cash balance = $38,725

New business formation and transaction analysis. You and a partner decide to open a new business specializing in land surveying and EPA required testing. You form a limited liability corporation (LLC) as ownership entity. While the two of you plan to start small, you have plans to expand this business which includes the purchase of land for future construction of a dedicated office/lab/equipment storage. In the first month of business, EPA-Test LLC has following business transactions.

Record each transaction using the horizontal transaction model.

1. The two partners invest $60,000 each into the business, allocating the equity capital across the following accounts: $77,500 cash, office and compute equipment costing $7,500, and sign a 3 year lease for a $35,000 for land test equipment. EPA-test takes possession of all assets at the beginning of the month.

2. EPA-Test LLC buys a plot of land for $32,000 for the planned office/lab/equipment storage paying $7,500 in cash and signing a long term note for $24,500.

3. EPA-Test LLC purchases a portable office/trailer for $24,000 cash and secures trailer on the new land. The trailer has a useful life of 3 years, w/ $2,400 estimated salvage value.

4. Pre-pays in cash $6,600 for an insurance premium for a 2 year policy on the office trailer.

5. Provides and bills $5,500 of services to their first client and is paid in cash.

6. Purchases an additional $3,500 of office and computer equipment for $700 in cash and a long term note for $2,800.

7. Provides $5,750 of services to its second client, payment to be received within 30 days.

8. Purchases on credit additional office equipment for $750.

9. Provides $9,200 of client services on credit.

10. Rents $1,320 for a specialized drill needed for the services provided in #7 above, to be paid in the next month.

11. Collects $4,600 cash from client services on transaction #9.

12. Pays $1,600 wages to employee.

13. Pays $750 cash for the office equipment in #8.

14. Pays $450 cash for repairs to computer equipment.

15. Withdraws $3,875 cash for personal use by the partners.

16. Pays $1,600 wages to employee.

17. Pays $1,800 cash for advertising for the first month.

18. Records insurance expense for one month.

19. Records one months depreciation on office trailer (hint: record $600 of depreciation).