Accounting Homework Help: Laura SmithCase Study
\CASE STUDY
Laura’s Clothing Store
Balance Sheet
31 December 2014
| Cash | $8,750 |
| Shop equipment (net) | 22400 |
| Inventory | 33,250 |
| Accounts receivable | 10,500 |
| Total Assets | $74,900 |
| Accounts payable | $15,750 |
| Owner’s equity, capital | 59,150 |
| Total Liabilities and Owner’s Equity | $74,900 |
On 2 January 2015 Laura went to her bank to get a loan for her business. The bank agreed to give her $17,500 as a three-year loan with an annual interest of $1,750. The business would repay the bank $17,500 plus $5,250 interest on 31 December 2017. Laura has come to you with the following information to help her prepare the 2015 financial statements:
(a)Sales for 2015 were $280,000. Of these, half were cash sales and half credit sales. Of the credit sales, 10% were not collected until 2016. The accounts receivable on 31 December 2014 were collected in 2015.
(b) Purchases of inventory for 2015 were $175,000. All purchases were on credit; 12% of it was not paid until 2016. The accounts payable on 31 December 2014 were paid in 2015.
(c) The business’s gross profit percentage has been 40% of sales; this continued to be in 2015.
(d) The shop rents space in a local shopping center. The rent is $700 per month; the rent for the whole year was paid in January 2015.
(e) The shop equipment that was originally purchased for $28,000 at the beginning of 2013 has a 10-year estimated life, after which it is expected to have no value.
(f) Laura pays her one salesperson a basic salary of $24,500 per year, plus 10% of gross sales. The total salary for 2015 was paid in cash by the end of the year.
(g) Laura withdrew $28,000 during 2015 to cover personal living expenses.
(h) Other operating expenses were $5,600 in 2015; these were paid in cash by the end of the year.
You determined that the information Laura has gathered is ‘reasonable’ and includes her best estimates.
Required:
1-Prepare a classified income statement for 2015 and show supporting calculations. (7 marks)
2-Prepare a cash flow statement for 2015. Use the direct method for operating cash flows and show supporting calculations. (7 marks)
3-Prepare a classified balance sheet as of 31 December 2015 and show supporting calculations. (7 marks)
4-Calculate the below applicable ratios and briefly intrepret each ratio. (9 marks)
Ratios: 1-Current Ratio (1.5 marks)
2-Debt Ratio (1.5 marks)
3-Profit Margin (1.5 marks)
4-Return on Owner’s Equity (1.5 marks)
5-Operating Cash Flow Margin (1.5 marks)
6-Cash Return on Owner’s Equity (1.5 marks)
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End of the assessment
