Sheet1
| FINANCIAL STATEMENT PREPARATION | |
| The following events occurred at MGR Company during its first year of business: | |
| a. | To establish the MGR, Merry and Mary each contributed a total of $50,000 in exchange for common stock. |
| b. | MGR, or MerryGoRound is an Event Planning Company that specializes in high-end parties. The first year they conducted 94 events and revenue for the first year amounted to $470,000, of which 95% was to be paid by the date of the event and the remainder due within 30 days of the event. |
| c. | Clients owe $15,000 at the end of the year from the services provided in December. |
| d. | At the beginning of the year, a storage building was rented. The company was required to sign a two-year lease for $15,000 per year and make a $3,000 refundable security deposit. The first year’s lease payment and the security deposit were paid at the beginning of the year. |
| e. | At the beginning of the year, the company purchased a full-size Merry-Go-Round at a cost of $100,000 as the signature theme piece of their company. The Merry-Go-Round is expected to be useful for fifteen years. The company paid 20% down in cash and signed a four-year note at the bank for the remainder (with 10% interest-only to be paid annually until maturity). Since each event includes the Merry-Go-Round, MGR also purchased a flatbed trailer to haul it with, for $8,000, also with an expected 15 year life. MGR must lease a large truck to haul the trailer for each event, which costs $1,000 per day. |
| f. | Other operating expenses, including wages, deprecation on other equipment, utilities, and rent on the storage building noted in (d) and (e) above, totaled $136,000 for the first year. No expenses were accrued or unpaid at the end of the year. |
| g | MGR purchased other equipment (tables & carts, ice machine, food heating trays and bags, helium tanks, music system, etc) for $10000 with an estimated life of 10 years and no salvage value. Salaries and wages for the year total $112,800 including payroll taxes. |
| h | The company declared and paid a $50,000 cash dividend at the end of the first year. |
| i | MGR is in the 35% corporate tax bracket. |
| Required | |
| 1 | Prepare an income statement for the first year. |
| 2 | Prepare a balance sheet as of the end of the first year. |
| 3 | Prepare a statement of retained earnings as of the end of the first year. |
| 4 | Prepare a statement of cash flows for the first year using the direct method in the Operating Activities section. |
| 5 | Complete both a horizontal and vertical analysis of the Income statement. |
| 6 | Did the company generate more or less cash flow from operations than it earned in net income? Explain why there is a difference. |
| 7 | Compute, explain & analyze the following ratios: |
| a | Gross Profit |
| b | Operating Leverage ratio |
| c | Return on common equity |
| d | Current ratio |
| e | Operating Cash flow to current liabilities |
| f | Long-term debt to assets |
| g | Interest coverage |
| Use good financial statement form and formulas to show your work in the cells. | |
| Hint: You may want to show each transaction in the Accounting Equation to be sure you are getting all the activities in the correct parts of the financial statements. |
Get help from top-rated tutors in any subject.
Efficiently complete your homework and academic assignments by getting help from the experts at homeworkarchive.com