Income Cost of Goods Sold Cost of Goods Sold Labor & wages Materials Other costs Shipping Wholesale items Total Cost of Goods Sold GROSS PROFIT Expenses Charitable contributions Fees & subscriptions Marketing Meals and Entertainment Office expenses & utilities Payroll expenses - administration Property taxes Reference materials Repair & Maintenance Salaries & wages Supplies & small tools Telephone & internet Travel Total Expenses NET OPERATING INCOME Other Income Other Expenses NET OTHER INCOME NET INCOME Montana Furniture Design Profit and Loss January 2018 - December 2020 JAN-DEC 2018 $2,276,200.04 535,388.59 358,432.76 17,572.46 120,887.26 369,990.57 $1,402,271.64 $873,928.40 27,181.75 13,944.88 14,803.36 1,301.94 8,186.70 5,491.70 2,353.90 9,733.46 225,935.42 5,568.83 5,077.83 8,657.06 $328,236.83 $545,691.57 $56.08 $0.00 $56.08 $545,747.65 + JAN-DEC 2019 $2,018,919.33 487,623.68 380,220.98 24,162.06 116,725.88 305,975.62 $1,314,708.22 $704,211.11 40,520.25 12,656.21 28,961.30 700.52 22,029.10 2,408.13 17.25 19,141.09 228,873.71 4,634.71 3,782.59 11,214.06 $374,938.92 $329,272.19- $52.15 $0.00 $52.15 $329,324.34 JAN-DEC 2020 $2,544,841.58 537,451.37 512,163.80 17,390.32 137,198.74 364,227.35 $1,568,431.58 $976,410.00 42,285.00 16,440.78 30,472.93 1,926.62 19,368.75 1,027.64 2,479.04 49.95 17,400.04 250,031.63 5,719.65 5,902.69 12,855.67 $405,960.39 $570,449.61 $171.00 $58.48 $112.52 $570,562.13 ASSETS Current Assets Bank Accounts Checking Savings Petty Cash Total Bank Accounts Accounts Receivable Accounts Receivable Total Accounts Receivable Other Current Assets Total Current Assets Fixed Assets Accumulated depreciation Equipment Improvements Roof Building addition Total Fixed Assets Inventory TOTAL ASSETS LIABILITIES AND EQUITY Liabilities Current Liabilities Accounts Payable Accounts Payable Total Accounts Payable Credit Cards Line of Credit Total Current Liabilities Long-Term Liabilities Total Liabilities Equity TOTAL LIABILITIES AND EQUITY Montana Furniture Design Balance Sheet 2018 through 2020 JAN-DEC 2018 29,210.44 5.00 6,066.58 $35,282.02 39,695.00 $39,695.00 $17,681.69 $92,658.71 -227,052.00 256,308.00 30,870.00 27,450.13 $87,576.13 $612,601.00 $792,835.84 0.00 $0.00 $-6,021.46 $60,000.00 $53,978.54 $0.00 $53,978.54 $738,857.30 $792,835.84 JAN-DEC 2019 75,266.59 5.27 0.00 $75,271.86 37,890.29 $37,890.29 $0.00 $113,162.15 -239,224.00 262,447.00 5,300.40 30,870.00 27,450.13 $86,843.53 $588,791.00 $788,796.68 35,772.72 $35,772.72 $7,819.82 $0.00 $43,592.54 $0.00 $43,592.54 $745,204.14 $788,796.68 JAN-DEC 2020 60,118.13 72,271.10 0.00 $132,389.23 212,066.58 $212,066.58 $24,476.40 $368,932.21 -243,369.00 262,447.00 5,300.40 30,870.00 27,450.13 $82,698.53 $294,153.00 $745,783.74 0.00 $0.00 $27,723.07 $0.00 $27,723.07 $112,170.40 $139,893.47 $605,890.27 $745,783.74 Use the attached financial statements to answer the following questions. Please be sure to read and adhere to the additional guidance listed on the following page. 1. Calculate gross profit as a percentage of sales for each year 2018-2020. This percentage represents how much of total revenue the business still has after paying for costs of goods sold. What does the change in gross profit from year to year say about this business? 3. The owner of Montana Furniture Design is worried about the economy. Specifically, she knows that it has become more difficult to buy and receive materials quickly. In order to avoid future issues, she's decided to buy materials of about $1,000,000 at the end of the year (2021) to keep in inventory for next year's production. Will this impact her net income for 2021? If so, how? 4. The owner of Montana Furniture Design would like to expand to several other states. To do this, she hopes to get outside funding. She wants to show her 2021 financials to a potential lender. Will this impact advice you may give her about buying a significant amount of inventory at year end 2021? Why or why not? 5. You'll notice that account receivable at year end 2020 are significantly larger than they've been in the past. While assessing the financials, the lender will no doubt note this and inquire further. What are three relevant and helpful questions the lender could ask in order to determine the risk around collecting all of those receivables? (Assume each of your questions would be answered by the owner with support documentation to verify the response) 6. Montana Furniture Design is presented using Generally Accepted Accounting Principles. This requires that the financials be presented using the accrual method of accounting. If we changed the 2020 method of accounting from the accrual method to the cash method, what would the 2020 net income be? 7. You'll notice that payroll costs went up in 2020 compared to 2019. Were the additional employees hired office staff or production staff or both? If I told you there were no new employees during 2020, what would this mean in regard to the increase in payroll costs? If you're thinking about investing in this business, is it a good thing or a bad thing that no new employees were hired over the course of 20203 Why or why not?