Unhappy with her job as a telecommunications consultant, Cathy Luce started a new business called Magical Meals. For $300 Ms. Luce plans customized menus based on her clients' needs. She creates vegetarian meals, special diets for those with health problems, or menus for families with little time for cooking. She sets aside a day for each client in which she packs up her red Alpha Romeo with pots and utensils, shops for food, and cooks 20 entrees in her client's home. Then she labels and either refrigerates or freezes the entrees and takes the dirty pans -home with her. Cathy requires that payment be made on the day services are rendered.

Before changing careers, Ms. Luce hired a career consultant. Together they decided that a career in cooking looked viable. First she considered being a restaurant chef. Then, through the Internet, she found the U.S. Personal Chef Association. "I called them that day. I knew without a doubt that that was what I am supposed to do," Ms. Luce says.

Ms. Luce took a course from the U.S. Small Business Administration on how to start a business, paid $2,000 in up-front costs, and determined the name for her business. By cooking in her clients' homes, she avoided purchasing expensive equipment, such as extra sinks, to meet state requirements for commercial kitchens. Accounting Applications: Instructions: Now that you have reviewed the case study above, answer the following questions on your own. Prepare the appropriate end-of-month reports for Magical Meals for the month ending November 30 this year using the following account names and balances. (Please note: The following account names and balances were created for this case study. Only the name of the business is real.)

Cash in Bank$3,750.00

Computer Equipment4,897.00

Cooking Equipment1,281.00

Accts. Pay. The Computer Store1,050.00

Accts. Pay. The Green Grocers124.00

Cathy Luce, Capital6,748.00

Cathy Luce, Withdrawals3,000.00

Fees6,500.00

Advertising Expense75.00

Food Expense1,244.00

Utilities Expense175.00

Instruction:

1.Using the accounting figures given, prepare all the financial statements needed by Cathy's business.

2.Explain how Cathy's financial statements differ from that of a merchandising business.

3.Explain why Cathy's business does not have any Account Receivables.

4.Cathy is looking for a bank loan to finance her capital investments. If you were a bank officer, would you extend a loan to Cathy? Discuss some of the accounting figures and ratios and any other additional information you would be interested in to make a decision.

5.Explain a measure that Cathy can adopt to ensure that her cash flow is smooth and protected.