Sweet Taste of Success

DENVER-Elise and Evan Macmillan-sister and brother entrepreneurs-aim to satisfy. "Our whole business is about customers, says Elise. These teenagers head The Chocolate Farm (TheChocolateFarm.com), which specializes in making chocolates and in helping their customers make them.

"We thought our business was going to be a one-day thing;' says Elise, "but it turned into a real business." This meant Elise and Evan had to deal with issues such as organization form, accounting and information systems, transaction analysis, and financial reports. Adds Elise, "I'm kept busy with the company's future plans and new product ideas and everything else that there is to a company."

Special attention is directed at accounting information; because without income, The Chocolate Farm would be knee-deep in cocoa. Elise and Evan were able to set up a transaction-based accounting system to profitably handle customer sales and orders. They also used accounting information to make good business decisions. Relying on

sales and expense information, Elise and Evan focused efforts on their best-sellers such as Brown Cows, Mint Sheep Munch, Pecan Turtles, and Pigs in Mud. Moreover, after an analysis of the accounting information, they decided to expand and now employ more than a dozen people.

Evan admits that even with the best accounting information, one must accept some risk. We "accept the fact that it's a risk," says Evan, but that's the reality of money making. Elise concurs, "I love chocolate, and so I'm having fun making money." The Farm now produces more than $1 million per year in revenues. We could all become chocolate-lovers with results like that!

Refer to this feature about The Chocolate Farm. Assume that the Macmillans wish to expand The Chocolate Farm to include a store devoted to selling food decorations related to the main business. They meet with a loan officer of a Denver bank to discuss a loan.

Required

Prepare a half-page report outlining the information you would request from the Macmillans if you were the loan officer.

Indicate whether the information you request and your loan decision are affected by the form of business organization for the proposed Chocolate Farm store.

Refer to this feature about the Chocolate Farm. Assume the Macmillans decide to open a small retail store to supplement their chocolate operations.

Required

The Macmillans obtain a $50,000 bank loan and contribute $30,000 of their own assets to support the opening of the new store.

What is the new stores total amount of liabilities plus equity?

What is the new stores total amount of assets?

If the Macmillans earn $20,000 of income in the first year the retail store

operates, compute the stores return on assets (assume average assets equal $80,000). Assess its performance if competitors average a 10 % return.