Question
Your friend Bob wants to starts an Italian restaurant and you decide to to invest in it. Bob has full discretion over establishing and managing
Your friend Bob wants to starts an Italian restaurant and you decide to to invest in it. Bob has full discretion over establishing and managing the business. On January 1, 2010, you gave Bob $150,000 to start the business at the beginning of 2010 in exchange for 10,000 shares and 20,000 common stock, respectively. Bob has agreed to receive a starting salary of $80,000 per year. Bob decided to focus on catering to local corporation, so he rented a space off of 5th avenue on January 1,2010. He purchased equipment for $48,000 and a delivery truck for $60,000. In 2010 you decide to visit the restaurants to meet with Bob and discuss the results of your investment.
Bob: I've focused on selling to companies on credit, so they pay me later. I typically collect money within 30 days of making the sale. This year I sold $1,220,000 of food; as of year-end, I've only collected $1,100,000 of this amount and my customers still owe me the remainder. With the state of the current economy, I am worried about whether I'll be able to collect anywhere from $10,000 to $30,000 of what my customers still owe me. Throughout the year, I've also purchased baking and other supplies for the ship from various vendors . To receive quantity discounts and purchase the supplies for a slightly lower prices, I purchase more at a time. This year I purchased and received $1,010,000 of supplies. My vendors let me buy on credit and then pay them later. Thus I still owe my vendors $50,000. Currently, I have about $20,000 of supplies that I haven't used that are at the shop.
Bob continued:Business has been going well and I've been selling to a variety of places. I've put more miles on the delivery truck than I expected to, so it will only last another, 3 years. I will probably need to replace the equipment after another 2 years. The restaurant is in a great location, which I rent for $2,800 a month. However , to get that low rent, I had to sign a 3 year lease and must pay 3 months of rent at a time. At the end of December, I paid the landlord for rent through March 2011. I've also paid myself the $80,000 salary as we agreed. Currently, I have $60,000 in the bank.
Based on what you know prepare a balance sheet, income statement and statement of cash flow for Bob.
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