Worksheet2:ReviewingFinancialStatements

PartA:TerminologyofFinancialStatements:

Definethesekeytermsandidentifythemonafinancialstatement.BeabletosorttheseitemsinLiquidityorderontheBalancesheetandseparateVariablevs.Fixedexpensesontheincomestatement.

BalanceSheet	IncomeStatementExpenses
Assets	Liabilities	Equity	VariableExpenses	FixedExpenses
(Thingthatyou	(Thingsthat you	(WhatyouOWEto	(expensesPAIDthat	(expensesPAIDthatdon't
OWN)	OWEto creditors)	shareholders/ owners)	changeproportionateto changeinsales)	changeproportionateto changeinsales)

Foreachitem,indicatewhichstatementtheybelongto:Balancesheet(BS)orIncomeStatement(IS)andItemType:FixedAssets=FA,CurrentAssets=CA,IntangibleAssets=IA,CurrentLiabilities=CL,LongTermLiabilities=FL,Equity=EQU,Revenue=R,VariableExpenses=VCorFixedExpenses=FC.

	Item	Statement	ItemType
1.	AccountsPayable
2.	AccountsReceivable
3.	AccumulatedDepreciation
4.	Administrativesalariesandbenefits
5.	AdvertisingCostsforGroupOnOffer
6.	AdvertisingExpenses
7.	BankCharges/Fees
8.	BrandValue
9.	Cash
10.	ClosingInventory
11.	CostofGoodsSold
12.	DepreciationExpense
13.	Equipment
14.	Goodwill
15.	Hourlylabourforfactorylineworkers
16.	HSTPaid
17.	Insurance
18.	InterestIncome
19.	Inventory
20.	Merchantcreditcardprocessing
21.	MiscellaneousExpenses
22.	MortgageOwed
23.	MortgagePayment
24.	NotesPayable
25.	Officerent
26.	OpeningInventory
27.	OutboundTelemarketing

	Item	Statement	ItemType
28.	Owners' equity
29.	Packagedesign
30.	Packagingmaterials
31.	Plantelectricity
32.	PremiumCostsforGiftwithPurchase
33.	Pre-Paidexpenses
34.	PSTCollectedbutnotyetpaid
35.	Purchases
36.	RetainedEarnings
37.	Revenues
38.	SalariesExpenses
39.	Sales
40.	Salesmencommission
41.	Shareholder'sEquity
42.	StockingFee
43.	TelephoneExpenses
44.	TransportationCosts
45.	TravelCosts
46.	TVmediaExpenses
47.	VariableExpenses
48.
49.

PartB:PracticingtheMath

1. (A)Createfinancialstatementsincorrectformatfromthelistofitemsprovided.Recordonblanksheetofpaper.(a)Sortitemsbystatementtype,thenbycategory,thenbyliquidity.(b)VerifythatAssets=Liabilities+Equity.Ifnot,somethingwrong.

1	AccountsPayable	$ 3,000
2	AccountsReceivable	$ 13,400
3	AccumDepn(Building)	$ 7,800
4	AccumDepn(Equipment)	$ -
5	AccumDepn(Fixtures)	$ 3,600
6	AdvertisingPromotion	$ 3,000
7	BeginningInventory	$ 18,000
8	Buildings	$ 77,000
9	Cash	$ 6,120
10	ContractsPayable	$ 6,000
11	DepreciationExpense	$ 2,000
12	EndingInventory	$ 18,200
13	Equipment	$ 8,000
14	Fixtures	$ 17,800
15	InsuranceExpense	$ 18,000
16	LongTermNote	$ 75,000
17	MerchandiseInventory	$ 19,200
18	MiscellaneousExpense	$ 4,000
19	NotesPayable	$ 4,000
20	OwnersEquity	$ 39,160
21	PaymentonBuildingnote	$ 34,000
22	PrepaidExpenses	$ 2,040
23	Purchasesduringtheyear	$ 22,000
24	SalariesExpense	$ 68,000
25	SalariesPayable	$ 5,000
26	Sales	$ 178,000
27	SuppliersExpenses	$ 7,460
28	UtilitiesExpense	$ 8,000

1. Answerthefollowingquestionsfromthecompletedstatements:
   1. CalculateTotalCurrentAssets

1. CalculateTotalFixedAssets
2. CalculateTotalAssets

1. CalculateTotalCurrentLiabilities

1. CalculateCostofGoodsSold

1. CalculateGrossProfit

1. CalculateTotalOperatingExpenses

1. CalculateNetProfit

1. WhichFixedAssetislikelythe"newest"

1. Whatadjustmentstoincomesstatementneededtoreflectcashflow

1. Pro-forma to evaluate financial impact of marketing strategies:At 10,000 units, Total Fixed Costs are $200,000 and Total Variable Costs are $50,000. Costs and profit vary with output. The itemcurrentlysellsfor$38. Thecompanyisconsideringhowtodoubleoutputto 20,000.Option1is doing nothing. Option 2 is reducing price to $28. Option 3 is increasing advertising by $50,000.
   1. Completethefollowingchart.

Assumptions	Base	Option1	Option2	Option3
OutputUnits	10,000	20,000	20,000	20,000
UnitPrice	$38	$38	$28	$38
VariableCosts/Unit
ContributionperUnit
ProformaIncomeStatement
TotalRevenue
-TotalVariableCosts
GrossProfit
-TotalFixedCosts
NetProfit
Analysis
GrossMargin
NetProfitMargin
BreakEvenUnits(Week5)
MarginofSafety(Week5)

1. DescribetherelationshipbetweenSalesandVariableCosts?SalesandFixedcosts?Salesand Gross Profit? Sales and Net Profit?

1. Whatisthedifferencebetweenfixedandvariablecosts?

1. Inordertodoublequantityofsales,isitbettertoreducepriceorincrease advertising?Explain how you would decide the best marketing strategy?

1. WouldyourrecommendationchangeifyouconsideredbreakevenunitsandMarginofSafety?