1. How much did Faster Bike Shop make in the first year of operations? (What is its Net Income/Profit?) 2. How much is Faster Bike Shop worth at the end of the first year of operations? (What is its total equity?) 3. If Phil has a competitor named Bill, what things would be helpful for you, an outsider, when attempting to compare the financial information of both?
1. How much did Faster Bike Shop make in the first year of operations? (What is its Net Income/Profit?) 2. How much is Faster Bike Shop worth at the end of the first year of operations? (What is its total equity?) 3. If Phil has a competitor named Bill, what things would be helpful for you, an outsider, when attempting to compare the financial information of both?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
FASTER BIKE SHOP
Phil Murphy liked bikes. During a recent period ofunemployment , he decided to turn his hobby
into a business by opening: FASTER BIKE SHOP where he both would sell and repair bikes.
Phil opened up an account at the local bank for FASTER BIKE SHOP and deposited all of his
retirement money, $20,000, into the business. His friend, Sue Long, gave Phil a two-year lease
on a building she owned for Phil to use as his bike shop for $12,000. To receive such a good
deal on rent, he was required to pay the $12,000 up front. In addition, Phil bought some store
fixtures and bicycle repair equipment for $10,000. He expected these to last for 5 years before
they needed to be replaced. Phil spent $2,700 for hand tools. Because of heavy use Phil
expected to need to replace the hand tools in 3 years.
To get the business started Phil advertised heavily in the local newspaper. He spent $5,000
advertising Faster Bike Shop in the first month, including the grand opening. He spent another
$2,000 advertising bike repair services in his local area in neighborhood newsletters and at
grocery stores.
At the end of his first year of business, FASTER BIKE SHOP had been paid $80,000 for bikes
Phil sold. The shop was also owed $10,000 by customers who purchased bikes on account
(credit). FASTER BIKE SHOP had also been paid $26,000 for repair work.
In addition to the things described above, FASTER’s check book showed the following
payments in the first year of business:
Purchase of bikes $60,000
Wages for a clerk/repair assistant 12,000
Insurance for two (2) years 4,000
Utilities 3,000
Supplies 1,250
Miscellaneous expenses 2,000
At the end of the year, Phil told you that there were bikes that cost $15,000 left in inventory,
about $250 of supplies left and $12,750 in the checking account. The utility bill for the last
month had not yet arrived, but Phil expected it to be about $300 and Faster Bike Shop still owed
$700 on the purchase of the bikes. His employee was also due $2,000 in salaries, but wasn’t
scheduled to be paid until next week.
Questions to answer:
1. How much did Faster Bike Shop make in the first year of operations? (What is its Net
Income/Profit?)
2. How much is Faster Bike Shop worth at the end of the first year of operations? (What is
its total equity?)
3. If Phil has a competitor named Bill, what things would be helpful for you, an outsider,
when attempting to compare the financial information of both?
Phil Murphy liked bikes. During a recent period of
into a business by opening: FASTER BIKE SHOP where he both would sell and repair bikes.
Phil opened up an account at the local bank for FASTER BIKE SHOP and deposited all of his
retirement money, $20,000, into the business. His friend, Sue Long, gave Phil a two-year lease
on a building she owned for Phil to use as his bike shop for $12,000. To receive such a good
deal on rent, he was required to pay the $12,000 up front. In addition, Phil bought some store
fixtures and bicycle repair equipment for $10,000. He expected these to last for 5 years before
they needed to be replaced. Phil spent $2,700 for hand tools. Because of heavy use Phil
expected to need to replace the hand tools in 3 years.
To get the business started Phil advertised heavily in the local newspaper. He spent $5,000
advertising Faster Bike Shop in the first month, including the grand opening. He spent another
$2,000 advertising bike repair services in his local area in neighborhood newsletters and at
grocery stores.
At the end of his first year of business, FASTER BIKE SHOP had been paid $80,000 for bikes
Phil sold. The shop was also owed $10,000 by customers who purchased bikes on account
(credit). FASTER BIKE SHOP had also been paid $26,000 for repair work.
In addition to the things described above, FASTER’s check book showed the following
payments in the first year of business:
Purchase of bikes $60,000
Wages for a clerk/repair assistant 12,000
Insurance for two (2) years 4,000
Utilities 3,000
Supplies 1,250
Miscellaneous expenses 2,000
At the end of the year, Phil told you that there were bikes that cost $15,000 left in inventory,
about $250 of supplies left and $12,750 in the checking account. The utility bill for the last
month had not yet arrived, but Phil expected it to be about $300 and Faster Bike Shop still owed
$700 on the purchase of the bikes. His employee was also due $2,000 in salaries, but wasn’t
scheduled to be paid until next week.
Questions to answer:
1. How much did Faster Bike Shop make in the first year of operations? (What is its Net
Income/Profit?)
2. How much is Faster Bike Shop worth at the end of the first year of operations? (What is
its total equity?)
3. If Phil has a competitor named Bill, what things would be helpful for you, an outsider,
when attempting to compare the financial information of both?
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