Maria Gutierrez and Devin Duzan recently graduated from the same university. After graduation they decided not to seek jobs at established organizations but, rather, to start their own small business hoping they could have more flexibility in their personal lives for a few years. Maria's family has operated Mexican restaurants and taco trucks for the past two generations, and Maria noticed there were no taco truck services in the town where their university was located. To reduce the amount they would need for an initial investment, they decided to start a business operating a taco cart rather than a taco truck, from which they would cook and serve traditional Mexican-styled street food.
They bought a used taco cart for $15,000. This cost, along with the cost for supplies to get started, a business license, and street vendor license brought their initial expenditures to $20,000.
They took $5,000 from personal savings they had accumulated by working part time during college, and they borrowed $15,000 from Maria’s parents. They agreed to pay interest on the outstanding loan balance each month based on an annual rate of 4 percent. They will repay the principal over the next few years as cash becomes available. They were able to rent space in a parking lot near the campus they had attended, believing that the students would welcome their food as an alternative to the typical fast food that was currently available.
After two months in business, September and October, they had average monthly revenues of $20,000 and out-of-pocket costs of $16,000 for rent, ingredients, paper supplies, and so on, but not interest. Devin thinks they should repay some of the money they borrowed, but Maria thinks they should prepare a set of
Required
- a. Prepare the annual pro forma financial statements that you would expect Maria to prepare based on her comments about her expectations for the business. Assume no principal will be repaid on the loan.
- b. Review the statements you prepared for the first requirement and prepare a list of reasons why actual results for Devin and Maria's business probably will not match their budgeted statements.
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Survey Of Accounting
- Bridget Youhzi works for a large firm. Her alma mater has asked her to make a presentation to the upcoming accounting honor societys annual scholarship dinner. Her firm supports the presentation because it hopes to recruit more excellent employees like Bridget. The university is 196 miles from her office. In order to get to the dinner by 5:00 p.m., she will need to leave work at 1:00 pm. She can drive her personal car and be reimbursed $0.50 per mile. The dinner ends at 9:00 p.m. Company policy allows her to spend the night if the return trip is tour hours or more. There is a student-run inn and conference center across the street from campus that charges $101 per night. Instead of driving, she could catch a 3:00 p.m. flight that has a round, trip fare of $300. Flying would require her to rent a car for $39 per day and pay an airport parking fee of $25 for the day. The company pays a per diem of $35 for incidentals if the employee spends at least six hours out of town. (The per diem would be for one 24-hour period for either flying or driving.) As a manager, Bridget is responsible for recruiting within a budget and wants to determine which is more economical. Use the information provided to answer these questions. A. What is the total amount of expenses Bridget would include on her expense report if she drives? B. What is the total amount of expenses she would include on her expense report if she flies? C. What is the relevant cost of driving? D. What is the relevant cost of flying? E. What is the differential cost of flying over driving? F. What other factors should Bridget consider in her decision between driving and flying?arrow_forwardQUESTION 1 Josephine Brain is going to open her fashion store. Comparing the pros and cons of setting up her own store from ground and acquiring an existing business, Josephine determines to purchase the existing business. Last month, Josephine discovered that a well-established ladies' clothing shop was up for sale. Although it is a private company, the shop was well known and quite successful in the local market. The present owner, Mrs Kathleen Todd, was quitting to retire very soon. Josephine contacted Mrs Todd to discuss the sale of the business. Mrs Todd hired a company to conduct an independent appraisal of the business, which concluded that tangible assets were $230,000 and assumable liabilities were $18,000. The appraisal estimated net profit for the next year to be $73,800 before deducting any managerial salaries. Josephine expects to draw $20,000 in salary since she believes this is the salary she could expect when working for someone else. Josephine estimates that a…arrow_forwardIntegrative Problem Samantha Sampson retired a few years ago at the age of 55. Because she is bored with retirement and still relatively young, Samantha has considered starting a business of her own. However, she doesn’t know anything about business. As a result, Sam has hired the consulting firm for which you work to give her a brief tutorial on business and finance. To begin her lesson, Ms. Sampson has asked you to answer the following questions: What is lean manufacturing? How is the goal of value maximization related to lean manufacturing?arrow_forward
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