Ribbons and Bows

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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 up a ribbon shop on January of 2006 in the Coconut Grove section of Miami, Florida. She received a startup loan for $10,000 set for one year at 6% interest rate. She also invested $1,000 of her money in the equity of the business.

Ribbons an’ Bows, Inc. was incorporated on March 1, 2006. Carmen’s uncle who is an attorney waived the incorporation fee of $600. Soon after her shop was incorporated she opened a bank account and deposited the $10,000 loan money as well as her $1,000 equity contribution. She agreed to pay $600 per month at the end of each month for rent store space. The agreement was for 18 months, beginning April 1, 2006 with the last two months pre-paid out of the newly acquired bank account to the amount of $1200. The Ribbons an’ Bows, Inc. opened on April 1. The previous tenant left behind counters and displays, and re-painted at no cost to Carmen.

Carmen ordered, received and paid for the stores opening inventory of accessories for $3,300. She acquired a cash register with credit-card processing capabilities for a refundable deposit of $250. She also signed agreements with local phone and utility companies and paid for $200 in store supplies. Carmen then paid $150 for an ad in the local paper on April...
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