Question:

Prepare an accounts analysis report with income statement, horizontal and vertical analysis, depreciation, accumulated depreciation and balance sheet.

John is between jobs right now. He was most recently sitting on the board of an overseas oil and gas

company. However, he was underqualified for the position and was eventually let go. Since then, John

has also sold some of his paintings for large sums of money. John feels frustrated by ongoing chatter

that he has only done well in his career as a result of his father, who holds a prestgious position with the

federal government.

Fortunately, John has a new idea. He wants to open a computer retail and repair shop. He recently had

a problem with his own laptop repair. After dropping his laptop at Erics Electronics Repair and neglecting

to pick it up, John, unfortunately, discovered that some sensitive information about his personal life had

been leaked to the press. Feeling angry about Erics lack of professionalism, John feels that he can

open a more ethical repair shop which will compete with Eric.

John spoken to a friend, Michelle, about this business idea and she has determined that he can

feasibly sell eighty-five laptops in his first year of business at an average price of $495 per laptop. Hunter

has contacted a major computer manufacturer who has quoted him $1,625 for five laptops, $3,150 for

ten laptops, or $28,500 for 100 laptops.

Michelle also projects one-hundred-and-fifty laptop repairs in the businesss first year, with each repair

priced at $95. On average, a laptop repair would cost John $40 in labour costs (he cant do repairs

himself but is hoping he can learn over >me), $10 in materials, and $5 in variable overhead costs.

Michelle isnt confident projecting numbers beyond two years but thinks John should be able to grow

sale and repair numbers by 50% in year two and at least sustain that level in following years. Michelle

has stressed that trend analysis is important.

Johns additional expenses would be $1,300 a month for rent, $350 a month for utilities, and $200 a

month for advertising. John plans to use a combination of debt and equity financing- he plans to pay

interest of $150 a month and dividends totalling $15,000 at the end of the year. Since John knows

many wealthy businesspeople around the world (mainly through a family friend named Barack), he

foresees no issues with getting money- he is planning to just call people and ask them if they want to buy

shares or loan money to his new company.

John is wondering how much money he might be able to withdraw at the end of the businesss first

year- he doesnt want to withdraw any cash which wasnt technically profit. He wants you to prepare,

using proper formatting, a first-year projected income statement and statement of retained earnings for

him.

John also wants feedback on his plan to use a combination of debt and equity financing. What is an

optimal financing mix for a business like his? What specifically should he know about such a decision?

Are there any benefits and drawbacks of using equity? What about debt?

If the business does well, John might consider buying a $30,000 machine which would cut the labor

cost of a laptop repair to only $15. The machine can repair an estimated 1,500 laptops before it needs to

be replaced. After doing some rough math he is not really confident in, John is wondering if he should

buy the machine now instead of waiting. He is also not sure how the machine will be depreciated- he

wants you to advise him on the best depreciation method for this situation and how the information will

be presented on the income statement and balance sheet.

Finally, John highly values the local indigenous community and wants to help its members, especially

children. He is thinking about gathering volunteer help to produce fifty laptops to sell to a local school at

cost (in future, he hopes to donate them for free). John wants you to explain, in detail, how costs can

be tracked for these fifty laptops, assuming some specialized workers such as supervisors are paid

hourly. He also wants you to take into consideration assembly line worker costs (assuming he cant find

enough volunteers), utilities costs, etc.