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Question #3 Statement of Changes in Financial Position (30 marks)

After 130 years in business, Fazer Caf has seen tremendous success in its home market of Finland.

Following this excellent track record, the company has decided to expand into Canada to capitalize

on the lack of premium-quality cafs and chocolateries in the target market. Specifically, Fazer

Caf has decided to open its first store in Toronto, which hosts many wealthy individuals and

families eager to consumer quality, ethically sourced products. Remaining true to its traditional

operating model, the company has established (1) a public storefront where customers may

purchase the companys renowned shrove buns in addition to (2) packaging and distribution

operations servicing retail grocery stores. Establishing operations so detached from the companys

home country proved to be rather expensive, with Fazer Caf spending $1,500,000 to finance

operation start-up costs. This investment went primarily towards purchasing equipment necessary

to produce and package the shrove buns. Some money was also spent on renovating the store front

and accessorizing the kitchen to ensure operations would be efficient.

Unsurprisingly, the companys streak of success wasnt finished quite yet, and Fazer Caf saw a

successful first year of operations. By the end of the year Fazer Caf had accrued $225,000 in cash

and another $565,000 in accounts receivable from its retail customers. The company had taken on

some short-term debt, totalling $115,000, to take advantage of favourable borrowing rates. Some

start-up costs also remained unpaid in the form of $455,000 in accounts payable as contractors had

extended generous payment terms. Fazer Caf had purchased their property, located near Bay

Street, for $2,500,000 with an outstanding mortgage of $2,200,000. Start-up investment had also

been used to purchase $380,000 in necessary equipment for day-to-day production and operations.

Unfortunately, this equipment was relatively specialized and depreciated quickly, with

accumulated depreciation totalling $100,000 by the end of Year 1.

Due to the cafs trendiness, Torontos multitude of influencers kept Fazer Caf extremely busy

throughout the year and management did not have an opportunity to review their performance until

the end of the first year. Using this opportunity, the store took a complete inventory count and

determined that ending inventory was valued at $135,000. Since this was its first year of

operations, Fazer Caf did not have any retained earnings from previous years. The company also

paid $100,000 in corporate taxes for Year 1. Management also drafted a projection of the

companys financial position by the end of Year 2, which is seen in the following chart:

Description Year 2

Mortgage $1,800,000

Accounts Receivable $250,000

Short Term Debt $15,000

Inventory $150,000

Equipment $390,000

Depreciation (Equipment) $75,000

Cash $160,000

Property $1,200,000

Accounts Payable $600,000

Retained Earnings $450,000COMM 200/600 Business Fundamentals Winter 2022

a) Prepare a Statement of Changes in Financial Position (Balance Sheet) for Fazer Caf at

the end of Year 1. In order to finance some start-up costs, the company sold some

Common Shares to rival company Milka, the value of which must be determined in order

to make the Balance Sheet balance. Enter this value for Common Shares under the

Shareholders Equity section of the Balance Sheet. (10 marks)

b) What is the value of Common Shares for Year 1? (5 marks)

c) Prepare a Pro-Forma Statement of Changes in Financial Position (Balance Sheet) for

Fazer Caf to project Year 2 results. Given the success of the business in its first year,

the company repurchased some Common Shares from Milka. (10 marks)

d) What is the new value of Common Stock on the Balance Sheet based on the numbers

provided for Year 2? (5 marks)