Please prepare individual tasks of one business of two owners (Mr. Baggins and M

Question

Please prepare individual tasks of one business of two owners (Mr. Baggins and Mr. Ant). Please do not take individual steps individually. Each operations (steps) are combined together (The steps follow each other in time).

Business of Mr. Baggins and Mr. Ant

Step 1 Mr. Baggins decided to do business in the production of rapidly decomposing plastic bags. Because he had only CZK 400.000, he persuaded his friend Mr. Ant to put his funds into the company in the amount of CZK 600.000, otherwise he could not buy equipment for CZK 800.000 or materials for CZK 100.000.

Put together a balance sheet

Step 2 Production started successfully, for the first year company managed to sell bags for CZK 600.000 for which it was used all materials and workers were paid 300.000 CZK for their job. Energy costs and services were CZK 70.000 and were paid in time. Depreciation is to 20% of the acquired property. (20% tax)

Put together the Income statement for this period.

Put together the Cash flow statement for this period.

Put together the Balance sheet at the end of the period.

Step 3 The business for the first year drew the attention to the fact that it would probably be necessary to continuously purchase supplies and maintain them on their level at CZK 50.000. Mr. Ant also pointed out that because of the competition of BUG, Inc., our customers started to pay us with a three-month delay.

In the second year, our company (Mr. Baggins and Mr. Ant) attempted to imitate the competition's performance and realized the same employment costs as previous year and double sales than in previous year. Cost of goods sold, energy cost and service cost have also doubled. Depreciation in the 2nd year will be 40% of the invested property.

Put together the Income statement for this period.

Put together the Cash flow statement for this period.

Put together the Balance sheet at the end of the period.

Step 4 For the next year and because of their grandiose plans, one long-term asset (machine) which was used till now, it is not sufficient anymore and our owners (Mr. Baggins and Mr. Ant) decided to buy a new machine for CZK 1.000.000. Therefore, they could produce and sell bags for CZK 2.200.000 per year without necessary to raise wages. Direct costs will rise proportionally to sales (note: compare sales for this year and previous one). Depreciations are 20 % for the 1st year and 40 % for other years)

Will be necessary to take a credit from bank? How much?

Eventually, recommend a minimum period for which the loan (5%) should be adopted

Prepare initial balance sheet of the year – including previous year, new machine and how you will pay for a new machine (decrease cash, or take a loan)

Put together the Income statement at the end of the period.

Put together the Cash flow statement at the end of the period.

Put together the Balance sheet at the end of the period.

Explanation / Answer

The company needs to take a credit from bank to the extent of $300,000 for three months. By the end of fourth month the company can repay the credit . This is because the average profit per month is $90,444. The required amount of $300,000 can be reaid in the fourth month.

The monthly average profit is $90,444. Therefore the company needs a  

Step 1 : Balace sheet at the time of investment Assets Cash 100000 Equipment 800000 Materials 100000 Total Assets 1000000 Liabilities and equity Liabilities 0 Equity Baggins, Capital 400000 Ant , Capital 600000 Total equity 1000000 Total liabilities and equity 1000000

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