In January 2006, Mary Jane Bowers was reviewing her plans for the April 1 opening of a garden center in Lynchburg, Virginia. She had selected Lynchburg as the town for a new home, after deciding to leave the large, northern city where she had both worked for the past 10 years. Bowers had a degree in horticulture and had worked for a large chemical company in its agricultural- herbicide division. Along with the decision to move, Bowers decided to change her work status as well. She wanted to devote her working days to something she enjoyed and was passionate about. Thus, she decided to go into business for herself, starting a retail garden store selling plants, trees, and shrubs. Bowers accumulated information on upscale retail garden stores from a number of sources, talked to suppliers, looked at potential locations, and established a banking relationship with the Campbell National Bank. She wanted to make sure that she had enough money to get the business off to a good start. Mary Jane had heard stories about many small businesses that failed because they were undercapitalized. The business, Garden Place, was incorporated as planned and ran operations for the first year the following transactions are recorded for the first year of op
In January 2006, Mary Jane Bowers was reviewing her plans for the April 1 opening of a garden center in Lynchburg, Virginia. She had selected Lynchburg as the town for a new home, after deciding to leave the large, northern city where she had both worked for the past 10 years. Bowers had a degree in horticulture and had worked for a large chemical company in its agricultural- herbicide division. Along with the decision to move, Bowers decided to change her work status as well. She wanted to devote her working days to something she enjoyed and was passionate about. Thus, she decided to go into business for herself, starting a retail garden store selling plants, trees, and shrubs.
Bowers accumulated information on upscale retail garden stores from a number of sources, talked to suppliers, looked at potential locations, and established a banking relationship with the Campbell National Bank. She wanted to make sure that she had enough money to get the business off to a good start. Mary Jane had heard stories about many small businesses that failed because they were undercapitalized. The business, Garden Place, was incorporated as planned and ran operations for the first year
the following transactions are recorded for the first year of operations of the Garden Place, Inc.:
- April 1, 2006—The business would be incorporated, and Mary Jane invests $80,000 in the company in exchange for shares of common stock.
- April 1, 2006—The Campbell National Bank would loan Garden Place, Inc. 32,000 to be repaid in equal principal payments over four years. The interest rate was 13%, and interest was payable at the end of each year when the principal payment was made.
- April 1, 2006—A pickup truck would be purchased for $12,000, of which $10,000 would be financed by the Campbell National Bank. The loan would be repaid over three years at the rate of $336 per month for a total of $12,100.
- April 1, 2006—Display equipment would be purchased for $6,000 cash.
- April 1, 2006—Gardening equipment would be purchased for $4000 cash.
- April 1, 2006—An Electronic-billing machine would be purchased for $3,600 cash.
- April 1 to 31st March, — Inventory of plants, and trees, would be purchased for $260,000. All purchases are cash purchases.
- Cash sales: $340,000; Sales on account: $60,000. The cost of the plants sold was $240,000
- Advertising expenses paid would be $20,000 for the year.
- Mary Jane/ Garden Place categorized a group of business expenses as ongoing. They were incurred as follows:
- Rent: $7,200 ($600 per month);
- Telephone: $1,200 ($100 per month);
- Utilities: $4,800 ($400 per month);
- Salaries: for three regular and four part-time employees $112000 (including $40,000 for Mary Jane)
- Monthly payments of $336 would be made on the $10,000 truck loan.
- A principal payment of $8,000 would be made on the $32,000 bank loan, along with interest of $4,160.
Required (Group Work, In-class)
Prepare the Financial Statements for the first year of Operations. The number of shares issued to Mary Jane are valued at $8 each
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