Response: please zoom in on your page to 110% or 125% and you will be able to see it fine, cannot make it any larger due to size constraints in Cheggs input box.

Create a MEMORANDUM answering case requirements 1 6 as listed on page 5 of this document.

• 8 pages maximum (a cover page does not count against the number of pages).
• Use a format similar to/ in the style of an executive summary: succinct descriptions, exhibits, and tables where appropriate.
• Include your financial statements.

File Tools View 1. Cupcake Case - Saved to this PC o 0 X CUPCAKE CASE You have two friends (Jacques and Gilles) who recently graduated from culinary school in France. You decided to invest in two cupcake shops and each friend will run one of the shops. Each will have full discretion over establishing and managing the businesses. On January 1, 2018, you gave Jacques 50,000 and Gilles 75,000 to start the businesses at the beginning of 2018 in exchange for 5,000 shares and 10,000 shares of common stock, respectively. Jacques and Gilles have each agreed to receive a starting salary of 40,000 per year. Jacques said: Business has been good. Customers come in and pay cash when they purchase the cupcakes. This year I collected 410,000 in cash from my customers. Throughout the year, I've purchased and received 280,000 in baking supplies for the shop from various vendors. I pay cash when I pur- chase these items. I try to buy just what I need, so I only have about 100 of unused supplies in the shop at any point in time. The shop is working out great and the customers love it. However, there has been more wear and tear on the furniture than I expected, so I'll be replacing most of the furni- ture in the next few weeks and that will cost me 17,000. Fortunately, the equipment I purchased is probably good for another three years. Jacques decided to focus on selling cupcakes directly to customers, so he opened a bakery and retail store in the 5th Arrondissement of Paris. On January 1, 2018, he purchased equipment for 21,000 and furniture for 11,000. At that time, he also purchased a store for 600,000. He paid 30,000 in cash and borrowed the remaining 570,000 from a bank. The bank loan has an interest rate of 6 percent a year. Jacques pays interest on the 10th of the month for the previous month's inter- est but will pay no principal until January 1, 2028, when the loan is due in full. Alt- hough the loan is for 10 years, Jacques expects to use the building for at least 30 years. Jacques continued: The bank loan isn't due until 2028 and I've been keeping current with the monthly interest payments of 2,850. I'll be paying Decem- ber's interest in the next few days. Also, I recently wrote you a dividend check for 5,000. As we agreed, I received a salary of 40,000 for the year. Currently, I have 41,650 in the bank. Gilles decided to focus on selling cupcakes to restaurants and corporations, so he rented baking and office space in the 20th Arrondissement of Paris on January 1, 2018. He purchased equipment for 24,000 and a delivery truck for 30,000. Gilles spoke next: I've focused on selling to restaurants and corporations on credit, so they pay me later. I typically collect money within 30 days of mak- ing the sale. This year I sold 610,000 of merchandise; however, as of year- end, I've only collected 550,000 of this amount and my customers still owe me the remainder. With the state of the current economy, I'm worried about whether I'll be able to collect anywhere from 5,000 to 15,000 of what my customers still owe me. Throughout the year, I've also purchased baking and other supplies for the shop from various vendors. To receive quantity dis- counts and purchase the supplies for a slightly lower price, I purchase more at a time. This year I purchased and received 505,000 of supplies. My ven- Now, in early January 2019, you have flown to Paris from your home in the United States to meet with Jacques and Gilles and discuss the results of your invest- ments. Activate Windows Go to Settings to activate Windows Screens 3-4 of 10 100% 1 Type here to search a 4) 9:46 PM 5/20/2020 File Tools View 1. Cupcake Case - Saved to this PC O 0 X Appendix A 2018 Cash Transactions for Jacques' Cupcake Shoppe dors let me buy on credit and then pay them later. Thus, I still owe my ven- dors 25,000. Currently, I have about 10,000 of supplies that I haven't used that are at the bakery. Beginning Cash Balance CASH INFLOWS Initial investment Cash from customers Borrowed cash from the bank Total Cash Inflows (receipts) 50,000 410,000 570,000 1,030,000 6 Gilles continued: Business has been strong and I've been selling to a variety of places. I've put more miles on the delivery truck than I expected to, so it will only last another three years. I will probably need to replace the equipment after another two years. I've found a great location for my baking and office space, which I rent for only 1,400 a month. However, to get that low rent, I had to sign a three-year lease and must pay three months of rent at a time. At the end of December, I paid the landlord for rent through March 2019. Since the location is great and the rental rate is good, I didn't mind signing the three-year lease and having to pay rent in advance. I've also paid myself the 40,000 salary as we agreed. Currently, I have 30,000 in the bank. CASH OUTFLOWS Purchased store (no land - just the store) Purchase of equipment Purchase of furniture Interest paid to bank (11 months) Cash paid to vendors for baking and other supplies Cash paid to Jacques for his salary Cash paid to you Total Cash Outflows (disbursements) 600,000 21,000 11,000 31,350 280,000 40,000 5,000 988,350 Ending Cash Balance 41,650 You told your friends that it seemed as though both businesses were doing well and you were happy with your investments. After they left, you begin to think about the cash you originally gave each of them and how each performed. "Yes," you think, "they both did well. Gilles received more cash from customers, but Jacques has more cash in the bank. So, who did better"? Appendix B 2018 Cash Transactions for Gilles' Cupcake Shoppe Beginning Cash Balance CASH INFLOWS Initial investment Cash from customers Total Cash Inflows (receipts) 75,000 550,000 625,000 CASH OUTFLOWS Purchase of equipment Purchase of delivery truck Cash paid to vendors for baking and other supplies Cash paid to Billess for his salary Rent payments (15 months) Total Cash Outflows (disbursements) 24,000 30,000 480,000 40,000 21,000 595,000 Ending Cash Balance Activa 30.000 Go to Settings to activate Windows, Screens 5-6 of 10 100% 1 Type here to search j ,C 4) 9:47 PM 5/20/2020 File Tools View 1. Cupcake Case - Saved to this PC o Prepare a MEMO in the style of an Executive Summary that addresses the questions below. This report should not exceed 8 pages (3 of these will be your financial statements) with normal margins. Fonts sizes less than 10 points are not acceptable. d. How much interest expense should Jacques report for 2018? (2.5 points) e. How much rent expense should Gilles report for 2018? (2.5 points) f. Each company incurs costs for baking and other supplies. How much should Gilles report for these costs? What about Jacques? (2.5 points) g. Are Jacques' purchases of equipment, a building, furniture, and a delivery van reported as expenses in 2018? (2.5 points) h. Is the dividend check for 5,000 that Jacques paid to you reported as an ex- pense? (2.5 points). i. If one company reports more profit before tax than another company, does that mean it did better? (10 points) 6. How can ratio analyses help determine which company did better? Use basic DuPont analysis (6 ratios) to illustrate your rationale. 1. How many companies exist? Will separate financial records be kept for each company or will the records be combined into one set of financial records? (5 points) 2. Who owns the company or companies? (2.5 points) 3. In what unit of currency should the financial statements be prepared? U.S. Dol- lars? Euros? (2.5 points) 4. You live in the U.S. but the businesses are located in France. Which "accounting rules" would most likely be used? International Financial Reporting Standards (IFRS) or U.S. Generally Accepted Accounting Principles (GAAP)? (5 points) 5. What should be considered when deciding who "did better"? (Hint: prepare the 3 financial statements) (50 points) a. Since Jacques received more cash from customers and has more cash in the bank, does that indicate he did better than Gilles? (12.5 points) b. How much revenue should each company report for 2018? (12.5 points) c. Does the fact that Gilles may not collect all of the cash owed to him affect his reported revenue? (5 points) Activate Windows Go to Settings to activate Windows, Screens 7-8 of 10 100% 1 Type here to search 4) 9:48 PM 5/20/2020 File Tools View 1. Cupcake Case - Saved to this PC o 0 X CUPCAKE CASE You have two friends (Jacques and Gilles) who recently graduated from culinary school in France. You decided to invest in two cupcake shops and each friend will run one of the shops. Each will have full discretion over establishing and managing the businesses. On January 1, 2018, you gave Jacques 50,000 and Gilles 75,000 to start the businesses at the beginning of 2018 in exchange for 5,000 shares and 10,000 shares of common stock, respectively. Jacques and Gilles have each agreed to receive a starting salary of 40,000 per year. Jacques said: Business has been good. Customers come in and pay cash when they purchase the cupcakes. This year I collected 410,000 in cash from my customers. Throughout the year, I've purchased and received 280,000 in baking supplies for the shop from various vendors. I pay cash when I pur- chase these items. I try to buy just what I need, so I only have about 100 of unused supplies in the shop at any point in time. The shop is working out great and the customers love it. However, there has been more wear and tear on the furniture than I expected, so I'll be replacing most of the furni- ture in the next few weeks and that will cost me 17,000. Fortunately, the equipment I purchased is probably good for another three years. Jacques decided to focus on selling cupcakes directly to customers, so he opened a bakery and retail store in the 5th Arrondissement of Paris. On January 1, 2018, he purchased equipment for 21,000 and furniture for 11,000. At that time, he also purchased a store for 600,000. He paid 30,000 in cash and borrowed the remaining 570,000 from a bank. The bank loan has an interest rate of 6 percent a year. Jacques pays interest on the 10th of the month for the previous month's inter- est but will pay no principal until January 1, 2028, when the loan is due in full. Alt- hough the loan is for 10 years, Jacques expects to use the building for at least 30 years. Jacques continued: The bank loan isn't due until 2028 and I've been keeping current with the monthly interest payments of 2,850. I'll be paying Decem- ber's interest in the next few days. Also, I recently wrote you a dividend check for 5,000. As we agreed, I received a salary of 40,000 for the year. Currently, I have 41,650 in the bank. Gilles decided to focus on selling cupcakes to restaurants and corporations, so he rented baking and office space in the 20th Arrondissement of Paris on January 1, 2018. He purchased equipment for 24,000 and a delivery truck for 30,000. Gilles spoke next: I've focused on selling to restaurants and corporations on credit, so they pay me later. I typically collect money within 30 days of mak- ing the sale. This year I sold 610,000 of merchandise; however, as of year- end, I've only collected 550,000 of this amount and my customers still owe me the remainder. With the state of the current economy, I'm worried about whether I'll be able to collect anywhere from 5,000 to 15,000 of what my customers still owe me. Throughout the year, I've also purchased baking and other supplies for the shop from various vendors. To receive quantity dis- counts and purchase the supplies for a slightly lower price, I purchase more at a time. This year I purchased and received 505,000 of supplies. My ven- Now, in early January 2019, you have flown to Paris from your home in the United States to meet with Jacques and Gilles and discuss the results of your invest- ments. Activate Windows Go to Settings to activate Windows Screens 3-4 of 10 100% 1 Type here to search a 4) 9:46 PM 5/20/2020 File Tools View 1. Cupcake Case - Saved to this PC O 0 X Appendix A 2018 Cash Transactions for Jacques' Cupcake Shoppe dors let me buy on credit and then pay them later. Thus, I still owe my ven- dors 25,000. Currently, I have about 10,000 of supplies that I haven't used that are at the bakery. Beginning Cash Balance CASH INFLOWS Initial investment Cash from customers Borrowed cash from the bank Total Cash Inflows (receipts) 50,000 410,000 570,000 1,030,000 6 Gilles continued: Business has been strong and I've been selling to a variety of places. I've put more miles on the delivery truck than I expected to, so it will only last another three years. I will probably need to replace the equipment after another two years. I've found a great location for my baking and office space, which I rent for only 1,400 a month. However, to get that low rent, I had to sign a three-year lease and must pay three months of rent at a time. At the end of December, I paid the landlord for rent through March 2019. Since the location is great and the rental rate is good, I didn't mind signing the three-year lease and having to pay rent in advance. I've also paid myself the 40,000 salary as we agreed. Currently, I have 30,000 in the bank. CASH OUTFLOWS Purchased store (no land - just the store) Purchase of equipment Purchase of furniture Interest paid to bank (11 months) Cash paid to vendors for baking and other supplies Cash paid to Jacques for his salary Cash paid to you Total Cash Outflows (disbursements) 600,000 21,000 11,000 31,350 280,000 40,000 5,000 988,350 Ending Cash Balance 41,650 You told your friends that it seemed as though both businesses were doing well and you were happy with your investments. After they left, you begin to think about the cash you originally gave each of them and how each performed. "Yes," you think, "they both did well. Gilles received more cash from customers, but Jacques has more cash in the bank. So, who did better"? Appendix B 2018 Cash Transactions for Gilles' Cupcake Shoppe Beginning Cash Balance CASH INFLOWS Initial investment Cash from customers Total Cash Inflows (receipts) 75,000 550,000 625,000 CASH OUTFLOWS Purchase of equipment Purchase of delivery truck Cash paid to vendors for baking and other supplies Cash paid to Billess for his salary Rent payments (15 months) Total Cash Outflows (disbursements) 24,000 30,000 480,000 40,000 21,000 595,000 Ending Cash Balance Activa 30.000 Go to Settings to activate Windows, Screens 5-6 of 10 100% 1 Type here to search j ,C 4) 9:47 PM 5/20/2020 File Tools View 1. Cupcake Case - Saved to this PC o Prepare a MEMO in the style of an Executive Summary that addresses the questions below. This report should not exceed 8 pages (3 of these will be your financial statements) with normal margins. Fonts sizes less than 10 points are not acceptable. d. How much interest expense should Jacques report for 2018? (2.5 points) e. How much rent expense should Gilles report for 2018? (2.5 points) f. Each company incurs costs for baking and other supplies. How much should Gilles report for these costs? What about Jacques? (2.5 points) g. Are Jacques' purchases of equipment, a building, furniture, and a delivery van reported as expenses in 2018? (2.5 points) h. Is the dividend check for 5,000 that Jacques paid to you reported as an ex- pense? (2.5 points). i. If one company reports more profit before tax than another company, does that mean it did better? (10 points) 6. How can ratio analyses help determine which company did better? Use basic DuPont analysis (6 ratios) to illustrate your rationale. 1. How many companies exist? Will separate financial records be kept for each company or will the records be combined into one set of financial records? (5 points) 2. Who owns the company or companies? (2.5 points) 3. In what unit of currency should the financial statements be prepared? U.S. Dol- lars? Euros? (2.5 points) 4. You live in the U.S. but the businesses are located in France. Which "accounting rules" would most likely be used? International Financial Reporting Standards (IFRS) or U.S. Generally Accepted Accounting Principles (GAAP)? (5 points) 5. What should be considered when deciding who "did better"? (Hint: prepare the 3 financial statements) (50 points) a. Since Jacques received more cash from customers and has more cash in the bank, does that indicate he did better than Gilles? (12.5 points) b. How much revenue should each company report for 2018? (12.5 points) c. Does the fact that Gilles may not collect all of the cash owed to him affect his reported revenue? (5 points) Activate Windows Go to Settings to activate Windows, Screens 7-8 of 10 100% 1 Type here to search 4) 9:48 PM 5/20/2020