We offer to wave all the financial requirements, including a start-up license fee of $550,000, 10-year license to use our brand name and a $35,000 line of credit at 12% (use 1% per month) to cover starting costs and any additional expenses. Carols business would pay back the line of credit and interest over time once the business starts making a profit. Carols jaw dropped she cannot believe what has happened. Michael continued to offer: And thats not all! To make your start easier, we are not giving you a new location; instead, we are giving you an existing location. The location will be this one Crowfoot Crossings. You can start tomorrow to learn the procedures, details in our head office, and the location will be yours starting May 1st two weeks from this Friday after ownership transfer documents are properly completed. Sarah stepped in and said that Michael was so excited about this they he did not wait for your reply. So, what is it? Carol said of course Yes, I cant hardly wait to tell my parents. During the two weeks at Head Office the following details about the transfer were covered,

1) The Point of Sales terminals (POS) will be used and connected to the Head Office computer system recording all sales, credit card processing, employee payroll, inventory tracking and replenishment. This will save a lot of time of the owner of the franchise and Carol will pay a service fee for the use of it equivalent to 0.5% of total gross sales. Payment is required by the fifth day of the following month.

2) Credit and Debit card processing fees 2% of total credit card sales, to deposit and process the credit card sales. The Credit and Debit Card sales will automatically be posted deposited to the stores Bank Account at the end of the week less the processing fees.

3) Payroll processing fees- of $150 for each pay period, this fee is for process all deductions, taxes, health tax, vacation pay, T4s, data input, and any other deductions. The fee is paid when employees are paid their salaries. Payroll is the middle of the two-week pay cycle, so existing employees will be getting paid for working from May 1st to 8th. These salaries will be paid on May 15th, the date of the employees regular pay period. This system will also handle employee expense account payments and deductions. The second payroll for the employees working for Carol will be on May 29th for working hours from May 9th to May 22.

4) The KickButt Coffee Shoppes automatic inventory replenishment system is amazing. It forecasts inventory requirements based on stores past and current sales and knows what has been used (it also calculates the Cost of Goods Sold) and will predict the number of stir sticks to be used in the next 5 days. Carol will have to do a physical inventory at the end of every month. The system will automatically order the required coffee supplies based on its estimates and the store will be invoiced when items are received, payable in 10 days after the receipt of the invoice. The inventory is tracked in three categories: coffee products, dairy products and supplies (including cups, lids, stir sticks), which make it easy to control and account for.

5) KickButt Coffee Shoppes monthly Royalty, Corporate Advertising, and Charities fees of 7.5% of gross sales to be paid on the first day of the following month during the term of the license,

6) The cost of the all inventory and store fixtures and equipment will be transferred at Book Value to Carol even though the market value for the fixtures and equipment are worth a lot more. The transfer of these assets will be charged against her Line of credit.

7) KickButt Coffee Shoppes will do the legal work for Carol to set up her franchise as a corporation starting May 1st, set up the employer identification number, open all business bank accounts required, and obtain HST numbers. The legal work will be done free of charge by KickButt Coffee Shoppes legal department and Carol will just have to pay the related fees of the above set-ups. These fees totaled $3,500 and will be charged to the line of credit account

. 8)The starting inventory and all the equipment will arrive April 24th along with the keys of the store. An Invoice dated May 1, will be sent to Carols company and the amount will be charged to Carols line of credit account on May 1st.

9) The location in the Food court has a 10-year lease dated May 1st and requires prepaying four months of rent on the fifth day of January, May and September. The rent for the locations is $2,400 per month for the mall location.

10) The mall receives a 4% of gross sales to be paid the first day of the month for last months sales as per the terms of the lease.

11) Carol will be taking a salary of $500.00 per pay date starting the first pay on May 15th. Transactions for the month of May.

Questions:-

i) Create a balance sheet, income statement for the same.