I- Financial Reports for Mary’s Chinese restaurant.
After spending many years in school studying business and completing her education, Mary finally graduates in 2009 and makes her parents proud. Mary has always dreamt of owning a Chinese food restaurant. A year later, her dream becomes true as her parents decide to reward her for her hard work by giving her the necessary funds to open the restaurant. We are currently in 2012 and Mary shows you the Financial Reports for her Chinese food restaurant of the year 2011. However, some details are missing because one of her employees accidently deleted some information. Help Mary recover the missing information and then make sure she understands the Income Statement, the Balance Sheet and the Cash Flow statement.
Income Statement of Mary’s Chinese food restaurant| Year 2011| | |
Less Drinks and Food Purchases (Cost of Goods Sold)| |
Gross Profit| 297,435|
Advisors fees| 1,200|
Wages On-costs| 11,100|
Interest paid| 4,400|
Selling expenses| 4,456|
Investment Income| 8,000|
Bank Charges| 1,900|
Telephone bill| 2,200|
Wages Gross| 37,000|
Other Expenses| 5,700|
Total operating expenses| |
Net Profit before tax| |
Answer the following questions for Mary’s Chinese food restaurant Income Statement.
1. What account types are reported in the Income statement? Explain them. 2. Calculate the missing value for Mary’s restaurant Cost of Goods sold? 3. If Cost of Goods sold were increased what would happen to the gross profit? 4. Explain how Sales or Cost of Goods sold could influence Gross profit. 5. Calculate the value for Total operating expenses.
6. How is the Net Profit calculated? Using Total expenses and gross profit, calculate the Net Profit. 7. What does Mary need to do in order to decrease expenses for her restaurant? 8. If depreciation and wages decrease, then what happens to net profit and Total operating expenses? Explain your answer.
Balance Sheet of Mary’s Chinese food restaurant| Year 2011| | |
Short term Assets| |
Cash and cash equivalent| 40,456|
Accounts receivable| 7,300|
Total short term Assets| |
Long Term Assets| |
Equipment and Furniture| 26,700|
Accumulated Depreciation| (6,000)|
Purchased business goodwill| 95,000|
Total long term Assets| |
Total Assets| 168,656|
Short term liabilities| |
Interest payable| 3,750|
Income taxes payable| 4,890|
Total short term liabilities| |
Long Term Liabilities| |
Total long term liabilities| 46,016|
Total Liabilities| |
Net Assets| 114,000|
Owners Equity| |
Answer the following questions for Mary’s Chinese food restaurant Balance sheet.
1- Calculate the total short term and long term assets for Mary’s Chinese restaurant. 2- Calculate the total short term liabilities and the total liabilities for Mary’s Chinese restaurant. 3- One of Mary’s friends argues that Goodwill could be Mary’s restaurant biggest asset. Do you agree with this argument? Explain your answer. 4- What is the owners equity? What is the value of the total equity in Mary’s restaurant Balance sheet?
CASH FLOW for Mary’s Chinese restaurant| Year 2011|
Cash Position – Start of the Year| 2,350|
CASH RECEIPTS| |
Cash Sales| 410,333|
Cash From Debtors| |
Capital Contributions| 54,451|...