Ribbons and Bows

859 WordsDec 18, 20104 Pages
Case 1-1 Table of Contents Issues………………………………………………………………………………………………………1 Facts………………………………………………………………………………………………………..2 Analysis……………………………………………………………………………………………………4 Issues 1. Ribbons an’ Bows’ Finances a. How would one report on Ribbons an’ Bows Inc.’s three-month operations through June 30? b. Was Ribbons an’ Bows, Inc. profitable? (Ignoring income taxes) c. Why did Ribbons an’ Bows, Inc.’s cash in the bank decline during the three-month operating period? 2. How would one report the financial condition of Ribbons an’ Bows, Inc. on June 30, 2006? 3. Should Carmen’s first three months of operation be characterized as “successful”? Explain. Facts Carmen Diaz opened…show more content…
After these expenses, the bank account was left with $4,000 in cash on March 31. Carmen decided to expand by selling custom-designed ribbon table arrangements for special events. As a result Carmen she purchased a used sewing machine for $1,800 cash on May 1. The investors asked Carmen to provide a financial report covering March 1st – June 30th. Upon review of this information, Carmen gathered the following. Customers paid $7,400 in cash for ribbons and accessories, but she was still owed $320 for a transaction on June 30. A part time employee was still owed $90 after being paid $1,510. Rent was paid in cash at the end of each month. Inventory replenishments costing $2,900 had been delivered and paid for by June 30. Carmen estimated the June 30th merchandise inventory on hand had cost $4,100. Opening office supplies were almost all gone with an estimated $20 in supplies was left. Carmen did not know why Ribbons an’ Bows cash on June 30 was $3,390, which was less than the April 1 balance of $4,000. She also had trouble accounting for the following in her financial report. No interest had been paid on the investors’ loan. Related expenditures on the sewing machine and her computer could prove to have estimated useful lives of 5 and 2 years respectively with no resale value. She did not know how to account for the free legal work and cash register provided. She also had not paid herself dividends for the four months of operations. If cash were available she
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