You are nearing completion of your first year at Brandybuck, Gamgee & Took, a mid-size accounting firm that specializes in small business consulting. With multiple projects and assignments completed, you are becoming more confident with your team and responsibilities. Your account manager, Jenny Lee, has just wrapped up a team meeting and you are pleased to see a familiar company as your teams next assignment. Your assignment is with Vera's Magic Garden Ltd., a destination greenhouse and formal garden specializing in perennials and herbs. You are informed by Jenny that Vera Topham, the owner and sole shareholder, was very pleased with your work on the financial statements and specifically requested your team to complete the 2023 cash budget and an analysis of the prior years financial statements. Appendix A contains details of purchasing, sales, expenditures, and payments expected for 2023 that were provided by the owner during our initial meeting. Your team will use this information and the comparative financial statements found in appendix B to create a monthly cash budget for the 2023 operating year, which runs January through December. Please ensure to include a cover memo with the budget that explains the components and includes supporting calculations in appendices. Your budget will be used by Matt Lees team as supporting documents to create a set of budgeted financial statements. Your team's second deliverable will be to prepare a report on the companys liquidity, solvency, and profitability based on your analysis of the comparative financial statements found in appendix B. The analysis will be used to support the discussion, conclusions, and any recommendations contained in your report. When creating the report, please keep in mind that the owner is not a professional accountant and may need more explanation using non-technical language than if your answers were addressed solely to me. Your response should conform to our firm's communication and presentation guidelines using Arial 12-point font with normal margins. All outside sources should be properly referenced in the American Psychological Association (APA) style. Draft financial statements, for review purposes, may be completed and forwarded in Excel and memos should be created using Microsoft Word. Please send your work to me for review prior to sending them to the client and Matt's team. ACCT-1071 Case Study #2 Veras Magic Garden Ltd. 3 Appendix A: Notes from Client Meeting The following information was provided by the owner of Veras Magic Garden Ltd. detailing expected sales, collections, purchases, expenditures, payments and financing for the fiscal year, January 01 December 31, 2023. Sales Sales are expected to increase by 5% over 2022 and historically have been earned as follows: January March, October & November 0% April 15% May 30% June 25% July 10% August & September (each month) 5% December 10% Total sales 100% Most sales are cash (30%) and credit card (60%); however, we do some corporate sales (10%) that are billed and collected the following month. Credit card sales are deposited directly to our bank account the next business day less a 4% transaction fee. The only exception to this pattern is December with sales of holiday wreathes and arrangements that are mainly corporate (80%) with the balance from cash sales. Purchases & Cost of Goods Sold Purchases are approximately 35% of total sales. Orders are made in February and a 20% deposit is payable in March. Approximately 60% of orders arrive during April and the balance arrive in early May with the balance owing paid 60 days following receipt. An additional purchase of $35,000 is planned for November for the holiday season and is payable the following January. Although purchases are approximately 35% of sales, cost of goods sold is approximately 38% of sales due to plant loss and end-of-season scrap. Annuals not sold during the season are scrapped as the cost of overwintering cannot be recovered; therefore, inventory consists of pots, soil, fertilizer, trees, shrubs, and perennials that are overwintered for sale next year. ACCT-1071 Case Study #2 Veras Magic Garden Ltd. 4 Expenses & Financing 1. Principal payments of $200,000 plus 10% interest on the year-end loan balance is payable on January 01 each year. 2. Principal payments of $50,000 plus 6% interest on the year-end mortgage balance is payable on January 01 each year. 3. We have negotiated an increase of $450,000 to the existing loan to finance new greenhouses that will be built during the slow period of August October. 4. The insurance policy is renewed on July 1st each year at a cost of $24,000. 5. Property taxes for 2023 will be $38,000 paid in January. 6. Salaries and wages are expected to increase to $240,000, paid as follows: i. 50% of salaries and wages expense is incurred during peak season April - July, paid evenly throughout each month. ii. 30% of salaries and wages expense is incurred during March, August, September, and October, paid evenly throughout each month. iii. 20% of salaries and wages expense is incurred during January, February, November, and December, paid evenly throughout each month. 7. All other expenses, other than depreciation and income tax, are expected to increase by 3%. 8. Selling expense, supplies expense and general/administrative expense follow the same pattern as salaries and wages expense. 9. All other expenses, other than income tax are incurred and paid evenly throughout the year. Income tax is paid in June based on the prior years corporate tax return. 10.Dividends of $30,000 will be paid in December. 11.The corporation plans to buyout the shares of one of the original investors at a cost of $200,000 in June. 12.Veras has access to a $500,000 line of credit to cover short-term cash needs at an annual interest rate of 6%. Excess cash is immediately used to repay the line of credit balance and interest charges are payable the following month on the prior months ending balance. ACCT-1071 Case Study #2 Veras Magic Garden Ltd. 5 Appendix B: Comparative Financial Statements (available in Excel) 2018 2019 2020 2021 2022 Sales revenue $ 1,528,013 $ 1,591,680 $ 1,658,000 $ 1,740,900 $ 1,827,945 Cost of goods sold 580,645 588,922 622,000 652,838 703,759 Gross profit 947,368 1,002,758 1,036,000 1,088,063 1,124,186 Operating expenses: Selling expense 95,550 98,000 100,000 103,000 106,090 Salaries & wages expense 216,899 222,460 227,000 233,810 240,824 Utilities expense 34,398 35,280 36,000 37,080 38,192 Property tax expense 34,000 35,000 35,000 38,000 38,000 Insurance expense 22,000 22,000 23,000 24,000 24,000 Depreciation expense 50,000 50,000 50,000 50,000 50,000 Supplies expense 15,288 15,680 16,000 16,480 16,974 Interest expense 136,640 113,640 90,640 67,640 44,640 General & administrative expense 146,192 149,940 153,000 157,590 162,318 Total operating expenses 750,966 742,000 730,640 727,600 721,039 income before income tax 196,402 260,758 305,360 360,463 403,147 Income tax expense 49,100 65,190 76,340 90,116 100,787 Net income $ 147,301 $ 195,569 $ 229,020 $ 270,347 $ 302,360 Vera's Magic Garden Ltd. Comparative Income Statement Year Ended December 31 ACCT-1071 Case Study #2 Veras Magic Garden Ltd. 6 2018 2019 2020 2021 2022 Assets Current Assets Cash $ - $ - $ - $ 43,273 $ 172,204 Accounts receivable 125,000 130,000 145,000 140,000 146,500 Interest receivable - - 28,000 - - Notes receivable - 10,000 20,000 10,000 5,000 Prepaid expenses 11,000 11,000 12,000 12,000 12,000 Supplies 500 400 300 350 450 Inventories 243,000 212,000 151,000 107,500 43,500 Total Current Assets $ 379,500 $ 363,400 $ 356,300 $ 313,123 $ 379,654 Property, Plant and Equipment Land 813,000 813,000 813,000 813,000 813,000 Buildings (net of depreciation) 940,000 920,000 900,000 880,000 860,000 Equipment (net of depreciation) 210,000 180,000 150,000 120,000 90,000 Total Property, Plant and Equipment 1,963,000 1,913,000 1,863,000 1,813,000 1,763,000 Total Assets $ 2,342,500 $ 2,276,400 $ 2,219,300 $ 2,126,123 $ 2,142,654 Liabilities and Shareholders' Equity Current Liabilities Bank indebtedness $ 32,610 $ 96,119 $ 5,000 $ - $ - Accounts payable 24,000 29,000 36,300 30,000 31,500 Interest payable 136,640 113,640 90,640 67,640 44,640 Income tax payable 49,100 65,190 76,340 90,116 100,787 Current portion of Mortgage payable 50,000 50,000 50,000 50,000 50,000 Current portion of Loan payable 200,000 200,000 200,000 200,000 200,000 Deferred revenue 68,000 Total Current Liabilities $ 492,350 $ 553,949 $ 526,280 $ 437,756 $ 426,927 Non-Current Liabilities Mortgage payable 539,000 489,000 439,000 389,000 339,000 Loan payable 813,000 613,000 413,000 213,000 13,000 Total Non-Current Liabilities 1,352,000 1,102,000 852,000 602,000 352,000 Total Liabilities 1,844,350 1,655,949 1,378,280 1,039,756 778,927 Shareholders' Equity Common shares 163,000 163,000 213,000 213,000 213,000 Retained earnings 335,150 457,451 628,020 873,367 1,150,727 Total Shareholders' Equity 498,150 620,451 841,020 1,086,367 1,363,727 Total Liabilities and Shareholders' Equity $ 2,342,500 $ 2,276,400 $ 2,219,300 $ 2,126,123 $ 2,142,654 Vera's Magic Garden Ltd. Balance Sheet December 31

You are nearing completion of your first year at Brandybuck, Gamgee & Took, a mid-size accounting firm that specializes in small business consulting. With multiple projects and assignments completed, you are becoming more confident with your team and responsibilities. Your account manager, Jenny Lee, has just wrapped up a team meeting and you are pleased to see a familiar company as your team's next assignment. Your assignment is with Vera's Magic Garden Ltd., a destination greenhouse and formal garden specializing in perennials and herbs. You are informed by Jenny that Vera Topham, the owner and sole shareholder, was very pleased with your work on the financial statements and specifically requested your team to complete the 2023 cash budget and an analysis of the prior year's financial statements. Appendix A contains details of purchasing, sales, expenditures, and payments expected for 2023 that were provided by the owner during our initial meeting. Your team will use this information and the comparative financial statements found in appendix B to create a monthly cash budget for the 2023 operating year, which runs January through December. Please ensure to include a cover memo with the budget that explains the components and includes supporting calculations in appendices. Your budget will be used by Matt Lee's team as supporting documents to create a set of budgeted financial statements. Your team's second deliverable will be to prepare a report on the company's liquidity, solvency, and profitability based on your analysis of the comparative financial statements found in appendix B. The analysis will be used to support the discussion, conclusions, and any recommendations contained in your report. When creating the report, please keep in mind that the owner is not a professional accountant and may need more explanation using non-technical language than if your answers were addressed solely to me. Your response should conform to our firm's communication and presentation guidelines using Arial 12-point font with normal margins. All outside sources should be properly referenced in the American Psychological Association (APA) style. Draft financial statements, for review purposes, may be completed and forwarded in Excel and memos should be created using Microsoft Word. Please send your work to me for review prior to sending them to the client and Matt's team. Appendix A: Notes from Client Meeting The following information was provided by the owner of Vera's Magic Garden Ltd. detailing expected sales, collections, purchases, expenditures, payments and financing for the fiscal year, January 01 - December 31, 2023. Sales Sales are expected to increase by 5% over 2022 and historically have been earned as follows: January - March, October & November 0% April 15% May 30% June 25% July 10% August & September (each month) 5% December 10% Total sales 100% Most sales are cash (30%) and credit card (60%); however, we do some corporate sales (10%) that are billed and collected the following month. Credit card sales are deposited directly to our bank account the next business day less a 4% transaction fee. The only exception to this pattern is December with sales of holiday wreathes and arrangements that are mainly corporate (80%) with the balance from cash sales. Purchases & Cost of Goods Sold Purchases are approximately 35% of total sales. Orders are made in February and a 20% deposit is payable in March. Approximately 60% of orders arrive during April and the balance arrive in early May with the balance owing paid 60 days following receipt. An additional purchase of $35,000 is planned for November for the holiday season and is payable the following January. Although purchases are approximately 35% of sales, cost of goods sold is approximately 38% of sales due to plant loss and end-of-season scrap. Annuals not sold during the season are scrapped as the cost of overwintering cannot be recovered; therefore, inventory consists of pots, soil, fertilizer, trees, shrubs, and perennials that are overwintered for sale next year. Expenses & Financing Press Esc to exit full screen 1. Principal payments or $200,000 plus 10% interest on the year-end toan balance is payable on January 01 each year. 2. Principal payments of $50,000 plus 6% interest on the year-end mortgage balance is payable on January 01 each year. 3. We have negotiated an increase of $450,000 to the existing loan to finance new greenhouses that will be built during the slow period of August - October. 4. The insurance policy is renewed on July 1st each year at a cost of $24,000. 5. Property taxes for 2023 will be $38,000 paid in January. 6. Salaries and wages are expected to increase to $240,000, paid as follows: i. 50% of salaries and wages expense is incurred during peak season April - July, paid evenly throughout each month. ii. 30% of salaries and wages expense is incurred during March, August, September, and October, paid evenly throughout each month. iii. 20% of salaries and wages expense is incurred during January, February, November, and December, paid evenly throughout each month. 7. All other expenses, other than depreciation and income tax, are expected to increase by 3%. 8. Selling expense, supplies expense and general/administrative expense follow the same pattern as salaries and wages expense. 9. All other expenses, other than income tax are incurred and paid evenly throughout the year. Income tax is paid in June based on the prior year's corporate tax return. 10. Dividends of $30,000 will be paid in December. 11. The corporation plans to buyout the shares of one of the original investors at a cost of $200,000 in June. 12. Vera's has access to a $500,000 line of credit to cover short-term cash needs at an annual interest rate of 6%. Excess cash is immediately used to repay the line of credit balance and interest charges are payable the following month on the prior month's ending balance. Appendix B: Comparative Financial Statements (available in Excel) Vera's Magic Garden Ltd. Comparative Income Statement Year Ended December 31 2018 2019 2020 2021 2022 Sales revenue Cost of goods sold Gross profit $ 1,528.013 $ 1.591,680 $ 1,658,000 $ 1,740,900 $ 1,827,945 580,645 588,922 622,000 652,838 703,759 947,368 1.002.758 1,036,000 1,088,063 1,124,186 Operating expenses: Selling expense Salaries & wages expense Utilities expense Property tax expense Insurance expense Depreciation expense Supplies expense Interest expense General & administrative expense Total operating expenses 95,550 216.899 34,398 34,000 22.000 50,000 15.288 136,640 146,192 750,966 98,000 222,460 35.280 35,000 22.000 50,000 15.680 113.640 149,940 742,000 100,000 227,000 36,000 35,000 23,000 50,000 16,000 90,640 153,000 730,640 103,000 233,810 37,080 38,000 24,000 50,000 16,480 67,640 157,590 727,600 106,090 240,824 38,192 38,000 24,000 50,000 16,974 44,640 162,318 721,039 income before income tax Income tax expense Net income 196,402 49,100 147,301 S 260,758 65,190 195,569 $ 305,360 76,340 229,020 S 360,463 90,116 270,347 S 403,147 100,787 302,360 $ Vera's Magic Garden Ltd. Balance Sheet December 31 2018 2019 2020 2021 2022 S S S 43.273 $ 140,000 125.000 172 204 146,500 130,000 Assets Current Assets Cash Accounts receivable Interest receivable Notes receivable Prepaid expenses Supplies Inventories Total Current Assets Property, Plant and Equipment Land Buildings (net of depreciation) Equipment (net of depreciation) Total Property, Plant and Equipment Total Assets 11,000 500 243,000 379,500 $ 10,000 11,000 400 212.000 363,400 $ $ 145,000 28.000 20,000 12,000 300 151,000 356,300 $ 10,000 12,000 350 107,500 313,123 $ 5,000 12.000 450 43,500 379,654 $ 813,000 813,000 813,000 813,000 813,000 940,000 920,000 900,000 880,000 860,000 210,000 180,000 150,000 120.000 90,000 1,963,000 1,913,000 1,863,000 1,813,000 1,763,000 $ 2,342,500 $2,276,400 $ 2,219,300 $ 2,126,123 $ 2,142,654 S Liabilities and Shareholders' Equity Current Liabilities Bank indebtedness Accounts payable Interest payable Income tax payable Current portion of Mortgage payable Current portion of Loan payable Deferred revenue Total Current Liabilities Non-Current Liabilities Mortgage payable Loan payable Total Non-Current Liabilities Total Liabilities 32,610 S 24,000 136,640 49,100 50,000 200.000 96,119 S 29,000 113,640 65,190 50,000 200.000 5,000 $ 36,300 90,640 76,340 50,000 200,000 68,000 526,280 $ 30,000 67.640 90.116 50,000 200,000 31,500 44,640 100,787 50.000 200,000 $ 492,350 $ 553,949 $ 437,756 $ 426,927 539,000 813,000 1,352,000 1,844,350 489,000 613,000 1,102,000 1,655,949 439,000 413,000 852,000 1,378,280 389,000 213,000 602.000 1,039,756 339,000 13,000 352,000 778,927 Shareholders' Equity Common shares Retained eamings Total Shareholders' Equity Total Liabilities and Shareholders' Equity 163.000 163,000 213,000 213,000 213,000 335,150 457.451 628,020 873,367 1,150,727 498,150 620,451 841,020 1,086,367 1,363,727 $ 2,342,500 $ 2,276,400 $ 2,219,300 $ 2,126,123 $ 2,142,654 You are nearing completion of your first year at Brandybuck, Gamgee & Took, a mid-size accounting firm that specializes in small business consulting. With multiple projects and assignments completed, you are becoming more confident with your team and responsibilities. Your account manager, Jenny Lee, has just wrapped up a team meeting and you are pleased to see a familiar company as your team's next assignment. Your assignment is with Vera's Magic Garden Ltd., a destination greenhouse and formal garden specializing in perennials and herbs. You are informed by Jenny that Vera Topham, the owner and sole shareholder, was very pleased with your work on the financial statements and specifically requested your team to complete the 2023 cash budget and an analysis of the prior year's financial statements. Appendix A contains details of purchasing, sales, expenditures, and payments expected for 2023 that were provided by the owner during our initial meeting. Your team will use this information and the comparative financial statements found in appendix B to create a monthly cash budget for the 2023 operating year, which runs January through December. Please ensure to include a cover memo with the budget that explains the components and includes supporting calculations in appendices. Your budget will be used by Matt Lee's team as supporting documents to create a set of budgeted financial statements. Your team's second deliverable will be to prepare a report on the company's liquidity, solvency, and profitability based on your analysis of the comparative financial statements found in appendix B. The analysis will be used to support the discussion, conclusions, and any recommendations contained in your report. When creating the report, please keep in mind that the owner is not a professional accountant and may need more explanation using non-technical language than if your answers were addressed solely to me. Your response should conform to our firm's communication and presentation guidelines using Arial 12-point font with normal margins. All outside sources should be properly referenced in the American Psychological Association (APA) style. Draft financial statements, for review purposes, may be completed and forwarded in Excel and memos should be created using Microsoft Word. Please send your work to me for review prior to sending them to the client and Matt's team. Appendix A: Notes from Client Meeting The following information was provided by the owner of Vera's Magic Garden Ltd. detailing expected sales, collections, purchases, expenditures, payments and financing for the fiscal year, January 01 - December 31, 2023. Sales Sales are expected to increase by 5% over 2022 and historically have been earned as follows: January - March, October & November 0% April 15% May 30% June 25% July 10% August & September (each month) 5% December 10% Total sales 100% Most sales are cash (30%) and credit card (60%); however, we do some corporate sales (10%) that are billed and collected the following month. Credit card sales are deposited directly to our bank account the next business day less a 4% transaction fee. The only exception to this pattern is December with sales of holiday wreathes and arrangements that are mainly corporate (80%) with the balance from cash sales. Purchases & Cost of Goods Sold Purchases are approximately 35% of total sales. Orders are made in February and a 20% deposit is payable in March. Approximately 60% of orders arrive during April and the balance arrive in early May with the balance owing paid 60 days following receipt. An additional purchase of $35,000 is planned for November for the holiday season and is payable the following January. Although purchases are approximately 35% of sales, cost of goods sold is approximately 38% of sales due to plant loss and end-of-season scrap. Annuals not sold during the season are scrapped as the cost of overwintering cannot be recovered; therefore, inventory consists of pots, soil, fertilizer, trees, shrubs, and perennials that are overwintered for sale next year. Expenses & Financing Press Esc to exit full screen 1. Principal payments or $200,000 plus 10% interest on the year-end toan balance is payable on January 01 each year. 2. Principal payments of $50,000 plus 6% interest on the year-end mortgage balance is payable on January 01 each year. 3. We have negotiated an increase of $450,000 to the existing loan to finance new greenhouses that will be built during the slow period of August - October. 4. The insurance policy is renewed on July 1st each year at a cost of $24,000. 5. Property taxes for 2023 will be $38,000 paid in January. 6. Salaries and wages are expected to increase to $240,000, paid as follows: i. 50% of salaries and wages expense is incurred during peak season April - July, paid evenly throughout each month. ii. 30% of salaries and wages expense is incurred during March, August, September, and October, paid evenly throughout each month. iii. 20% of salaries and wages expense is incurred during January, February, November, and December, paid evenly throughout each month. 7. All other expenses, other than depreciation and income tax, are expected to increase by 3%. 8. Selling expense, supplies expense and general/administrative expense follow the same pattern as salaries and wages expense. 9. All other expenses, other than income tax are incurred and paid evenly throughout the year. Income tax is paid in June based on the prior year's corporate tax return. 10. Dividends of $30,000 will be paid in December. 11. The corporation plans to buyout the shares of one of the original investors at a cost of $200,000 in June. 12. Vera's has access to a $500,000 line of credit to cover short-term cash needs at an annual interest rate of 6%. Excess cash is immediately used to repay the line of credit balance and interest charges are payable the following month on the prior month's ending balance. Appendix B: Comparative Financial Statements (available in Excel) Vera's Magic Garden Ltd. Comparative Income Statement Year Ended December 31 2018 2019 2020 2021 2022 Sales revenue Cost of goods sold Gross profit $ 1,528.013 $ 1.591,680 $ 1,658,000 $ 1,740,900 $ 1,827,945 580,645 588,922 622,000 652,838 703,759 947,368 1.002.758 1,036,000 1,088,063 1,124,186 Operating expenses: Selling expense Salaries & wages expense Utilities expense Property tax expense Insurance expense Depreciation expense Supplies expense Interest expense General & administrative expense Total operating expenses 95,550 216.899 34,398 34,000 22.000 50,000 15.288 136,640 146,192 750,966 98,000 222,460 35.280 35,000 22.000 50,000 15.680 113.640 149,940 742,000 100,000 227,000 36,000 35,000 23,000 50,000 16,000 90,640 153,000 730,640 103,000 233,810 37,080 38,000 24,000 50,000 16,480 67,640 157,590 727,600 106,090 240,824 38,192 38,000 24,000 50,000 16,974 44,640 162,318 721,039 income before income tax Income tax expense Net income 196,402 49,100 147,301 S 260,758 65,190 195,569 $ 305,360 76,340 229,020 S 360,463 90,116 270,347 S 403,147 100,787 302,360 $ Vera's Magic Garden Ltd. Balance Sheet December 31 2018 2019 2020 2021 2022 S S S 43.273 $ 140,000 125.000 172 204 146,500 130,000 Assets Current Assets Cash Accounts receivable Interest receivable Notes receivable Prepaid expenses Supplies Inventories Total Current Assets Property, Plant and Equipment Land Buildings (net of depreciation) Equipment (net of depreciation) Total Property, Plant and Equipment Total Assets 11,000 500 243,000 379,500 $ 10,000 11,000 400 212.000 363,400 $ $ 145,000 28.000 20,000 12,000 300 151,000 356,300 $ 10,000 12,000 350 107,500 313,123 $ 5,000 12.000 450 43,500 379,654 $ 813,000 813,000 813,000 813,000 813,000 940,000 920,000 900,000 880,000 860,000 210,000 180,000 150,000 120.000 90,000 1,963,000 1,913,000 1,863,000 1,813,000 1,763,000 $ 2,342,500 $2,276,400 $ 2,219,300 $ 2,126,123 $ 2,142,654 S Liabilities and Shareholders' Equity Current Liabilities Bank indebtedness Accounts payable Interest payable Income tax payable Current portion of Mortgage payable Current portion of Loan payable Deferred revenue Total Current Liabilities Non-Current Liabilities Mortgage payable Loan payable Total Non-Current Liabilities Total Liabilities 32,610 S 24,000 136,640 49,100 50,000 200.000 96,119 S 29,000 113,640 65,190 50,000 200.000 5,000 $ 36,300 90,640 76,340 50,000 200,000 68,000 526,280 $ 30,000 67.640 90.116 50,000 200,000 31,500 44,640 100,787 50.000 200,000 $ 492,350 $ 553,949 $ 437,756 $ 426,927 539,000 813,000 1,352,000 1,844,350 489,000 613,000 1,102,000 1,655,949 439,000 413,000 852,000 1,378,280 389,000 213,000 602.000 1,039,756 339,000 13,000 352,000 778,927 Shareholders' Equity Common shares Retained eamings Total Shareholders' Equity Total Liabilities and Shareholders' Equity 163.000 163,000 213,000 213,000 213,000 335,150 457.451 628,020 873,367 1,150,727 498,150 620,451 841,020 1,086,367 1,363,727 $ 2,342,500 $ 2,276,400 $ 2,219,300 $ 2,126,123 $ 2,142,654