You have been hired by ABC Co. to assess their current financial situation and offer suggestions for potential expansion. ABC has been in business for 6 years and has grown from a sole proprietor to its current status. The business is in a growing industry and sells accessories for technology items. Sales have been steadily growing and this is something that Jane, the owner is very happy about.

Janes area of expertise is marketing and operations and she hired you to get an outsiders perspective on the current position of her business and to see if her young employees have been keeping the books accurately as well as guiding her appropriately from a financial perspective. She does have long range plans for the business and part of her plan requires external financing. As part of her plan, she is thinking about expansion.

In your meeting with her, she starts throwing out names and numbers of accounts and hands you several documents. You collect the notes and jot down all the information she is verbally telling you, so as not to miss any important facts. You know the 1^st step you will take is to prepare some financial statements in order to establish her current situation. But to give her future oriented advice, you know an analysis of the statements will also be required.

Jane emphasizes that all the information you are about to receive is for the most recent fiscal year which ended on December 31^st. She tells you taxes were 27% of pre-tax profit of which $9,000 is still owed. She explains there is $102,000 of common stock and she recently paid a dividend of $8,350. She tells you she has a mortgage loan with the long term portion outstanding of $142,800. The current portion for this period was $14,600.

She provides you with a document that lists beginning of the year inventory at $66,780. The document also details several expenses that were incurred throughout the year including utilities at $5,440, depreciation on building and equipment of $18,600, advertising of $14,200, and interest expense of $3,100. The business currently holds $49,000 in other investments that may be sold or turned into depreciable assets in the future.

Jane has a smile when she informs you that sales have grown over 12% from the previous year and she expects similar growth for the following year. Her current year sales are $958,337. Of course her purchases are a major expense for her business and she spent $833,900 to support her encouraging sales figures. $146,300 is still owed to her suppliers. The owner lets you know that she also has a notes payable of $48,000.

Jane provides you with copies of documents showing that she purchased her property (land/building/equipment) for $369,400. She tells you the land cost was listed at $109,300 and the building and equipment cost was listed at $232,600. Drawing from your knowledge of Goodwill (Goodwill is recorded in a situation in which the purchase price is higher than the sum of the fair value of all identifiable assets purchased in the acquisition), you realize this difference will be recorded on the balance sheet, listed below the fixed assets, and will be combined with both the current and fixed assets to determine total assets.

The owner states that she does allow some of her business customers to get items on credit, causing current, end of year accounts receivables of $64,200.

She lets you know during the course of your meeting that her business had a gross profit of $256,660, salary expense of $125,970 and other operating expenses of $5,550. At the beginning of the current year, accumulated depreciation on the building and equipment was $104,100.

Lastly, she shows you the previous retained earnings statement and you see her business has previously retained $61,000 of past earnings to help fund the business.

With all the information presented, she requests you create independent financial statements so she can compare them to the information her current employees have provided. Below are the details she is requesting.

CASE ANALYSIS

1. In an Excel spreadsheet, prepare the financial statements. Create an income statement, statement of retained earnings and balance sheet. Be sure to use your own formulas whenever there is a calculation. DO YOUR OWN WORK. Show each financial statement in a separate sheet within your excel spreadsheet. Be sure to clearly identify (rename) each sheet so the sheet corresponds to the statements.