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One summer Saturday morning as Richie, an energetic and enterprising six year old, and his dad, a finance professor, were eating breakfast; Richie noticed an

One summer Saturday morning as Richie, an energetic and enterprising six year old, and his dad, a finance professor, were eating breakfast; Richie noticed an ad in the newspaper for a Nintendo Game Cube video game player. The sale price of $199.99 included, if purchased that week, a free second controller as well as a coupon for $50 off the regular retail price of the video game, Red Card Soccer 2003. Earlier that week Richie and his dad had discussed the possibility of Richie getting a Game Cube for Christmas. Given this discussion, the free controller, the coupon, and the fact that, to Richie, Christmas was at least another 5,000 days away, Richie asked his dad if they could get the video game player that afternoon. Dad, said Richie, you can just buy my Christmas present early this year. And dad, he continued, If you get me a Game Cube today, you can play with my game anytime you like. Although Richies dad was tempted, because he wanted a Game Cube at least as much as Richie did, instead he decided to use this opportunity to teach Richie a lesson about money. Richie, he said, If you can earn one-fourth of the money on your own, which is $50, I will put in the rest of the money and buy you a Game Cube. Richie, though very excited about the offer, had absolutely no idea how a six year old could earn $50. After much discussion, however, he and his dad decided that Richie should start a business and that the best business for a six year old to operate was a lemonade stand. The day was perfect for selling lemonade - it was hot and given the rain earlier in the week, most of the people in the neighborhood would be cutting grass and working in their yards. Thus began Richies venture into the world of business and corporate finance. Surely, thought Richies dad, this will be a lesson my son will never forget! Richies dad loaned him $30 (interest free) to start his business. With the money, Richie bought 10 two-quart packets of lemonade mix for $1.00 per packet, 100 plastic cups for $5.00 (5 cents per cup), a poster board and magic marker to make a sign for $3.00, a table and chair at a local garage sale for $8.00, and a small box in which to keep his money for $2.00. Richies dad agreed to loan Richie a two-quart pitcher and mixing spoon for $1.00 per day and to sell him water and ice from the kitchen for $0.50 per pitcher (in business, there is no such thing as a free lunch). Richie negotiated terms of net 5 on these items, meaning that the rent and cost of water and ice had to be paid within 5 days of when they were incurred. Richie priced his lemonade at $0.50 per glass. By the end of the day, he had sold 60 glasses of lemonade. Since each pitcher produced 10 glasses of lemonade, he used 6 packets of mix during the day. All sales were for cash, except for 2 glasses that he sold to his dad while he was cutting the grass and 4 glasses that he sold to his mom for that evenings dinner. Neither Richies mom nor dad had cash with them when they bought the lemonade so Richie agreed to sell them the lemonade on credit with credit terms of net 2 days. After dinner that evening, dad explained to Richie the importance of officially recording the days activities. The current state and operating history of any business, dad explained, are best summarized with an income statement and a balance sheet. To track actual cash flow, he continued, it is best to use a statem0ent of cash flows, which nets all cash outflows against cash inflows for a given time period. Accordingly, Richie and his dad sat down at the computer to create a set of financial statements for the lemonade business. Requirement: Create an income statement and a balance sheet for Richies Lemonade

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