Case 1-1 RIBBONS AN’ BOWS, INC.
1. How would you report on the three-month operations of Ribbons an’ Bows, Inc, through June 30? Was the company profitable? (Ignore Income Taxes) Why did its cash in the bank decline during the three-month operating period?
2. How would you report the financial condition of the business as of June 30, 2010?
3. Do you believe Carmen’s first three months of operation could be characterized as “successful”? Explain your answer.
Answers to guide questions
1. Ribbons and Bows performance from April to June 2010 shows a
net income (before tax) of $1,480. As a start up company, it was able to sustain ...view middle of the document...
What is notable here is that, purchase of sewing machine reduced cash by $1,800 but expense recorded for its accumulated depreciation is only at $60. Salaries and rent expenses are inevitable to be incurred. But for the merchandise inventory, ending inventory was higher than the beginning inventory and this was paid through cash. Cash merchandise was at 2,900 while the cost of goods sold is only at $2,100.
2. Financial condition is still not stable as company’s liability is bigger
than the company’s assets. Current ratio is at (9,280 / 10,290) .9018. Looking closely, the presence of accounts payable and its corresponding interests has a big impact in the distribution of company’s resources.
Company has a big merchandise inventory as against the total asset value. This sends a signal that the company has a little product sales/service rendering during the period.
In general, the financial condition is fairly good considering Ribbons has just started its operations and there are still several opportunities with which it could bounce back from its current financial condition. The balance sheet in the previous page explains the company’s financial.
3.) Yes, Carmen was successful on her first three months of operations. Ribbons an Bow’s Inc was successful on the following conditions:
a. Establishing the company using a relatively small capital and creative investment methodology.