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Kate is very pleased with the results of the first year of year on a high note, with the company's reputation for producing quality cards leading to more bsi. ness than she can currently manage. Kate is considering expanding and bringing in several emlay- ees. In order to do this, she will need to find a larger location and also purchase more this means additional financing. Kate has asked you to look at her year-end financial statements as if you were a banker considering giving Kate a loan. Comment on your findings and provide calcula- tions to support your comments. equipment. All

Kate is very pleased with the results of the first year of year on a high note, with the company's reputation for producing quality cards leading to more bsi. ness than she can currently manage. Kate is considering expanding and bringing in several emlay- ees. In order to do this, she will need to find a larger location and also purchase more this means additional financing. Kate has asked you to look at her year-end financial statements as if you were a banker considering giving Kate a loan. Comment on your findings and provide calcula- tions to support your comments. equipment. All

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Serial Problem: Kate's Cards** (Note: This is a continuation of the Serial Problem: Kate's Cards from Chapter 1 through Chapter 12.) **SP13: Analysis of Kate's Cards Financial Statements** Kate is very pleased with the results of the first year of operations for Kate’s Cards. She ended the year on a high note, with the company's reputation for producing quality cards leading to more business than she can currently manage. Kate is considering expanding and bringing in several employees. In order to do this, she will need to find a larger location and also purchase more equipment. All this means additional financing. Kate has asked you to look at her year-end financial statements as if you were a banker considering giving Kate a loan. Comment on your findings and provide calculations to support your comments. --- **KATE’S CARDS** **Income Statement** *Year Ended August 31, 2019* - **Sales revenue**: $185,000 - **Cost of goods sold**: $106,000 **Gross profit**: $79,000 - **Operating expenses**: - Wages: $18,200 - Consulting: $11,850 - Insurance: $3,400 - Utilities: $14,400 - Rent: $14,250 - Depreciation: $3,250 **Total operating expenses**: $51,100 **Income from operations**: $27,900 - **Interest expense**: $900 **Income before income tax**: $27,000 - **Income tax expense**: $5,400 **Net income**: $21,600 --- **Graph/Diagram Explanation:** This document contains an income statement for "Kate's Cards," detailing both income and expenses for the year ending August 31, 2019. The statement lists sales revenue, cost of goods sold, and results in a gross profit of $79,000. Operating expenses are broken down into specific categories, with total operating expenses amounting to $51,100, leading to an income from operations of $27,900. After accounting for an interest expense of $900 and income tax, the net income is $21,600. This financial snapshot is crucial for assessing the company's performance and potential for future growth and expansion financing.
Transcribed Image Text:**Serial Problem: Kate's Cards** (Note: This is a continuation of the Serial Problem: Kate's Cards from Chapter 1 through Chapter 12.) **SP13: Analysis of Kate's Cards Financial Statements** Kate is very pleased with the results of the first year of operations for Kate’s Cards. She ended the year on a high note, with the company's reputation for producing quality cards leading to more business than she can currently manage. Kate is considering expanding and bringing in several employees. In order to do this, she will need to find a larger location and also purchase more equipment. All this means additional financing. Kate has asked you to look at her year-end financial statements as if you were a banker considering giving Kate a loan. Comment on your findings and provide calculations to support your comments. --- **KATE’S CARDS** **Income Statement** *Year Ended August 31, 2019* - **Sales revenue**: $185,000 - **Cost of goods sold**: $106,000 **Gross profit**: $79,000 - **Operating expenses**: - Wages: $18,200 - Consulting: $11,850 - Insurance: $3,400 - Utilities: $14,400 - Rent: $14,250 - Depreciation: $3,250 **Total operating expenses**: $51,100 **Income from operations**: $27,900 - **Interest expense**: $900 **Income before income tax**: $27,000 - **Income tax expense**: $5,400 **Net income**: $21,600 --- **Graph/Diagram Explanation:** This document contains an income statement for "Kate's Cards," detailing both income and expenses for the year ending August 31, 2019. The statement lists sales revenue, cost of goods sold, and results in a gross profit of $79,000. Operating expenses are broken down into specific categories, with total operating expenses amounting to $51,100, leading to an income from operations of $27,900. After accounting for an interest expense of $900 and income tax, the net income is $21,600. This financial snapshot is crucial for assessing the company's performance and potential for future growth and expansion financing.
### KATE’S CARDS **Balance Sheet** **August 31, 2019** **Assets** - **Current assets** - Cash: $17,400 - Accounts receivable: $11,000 - Inventory: $16,000 - Prepaid insurance: $1,000 - **Total current assets**: $45,400 - Equipment: $17,500 - Accumulated depreciation: $3,250 **Total assets**: $59,650 **Liabilities** - **Current liabilities** - Accounts payable: $1,250 - Unearned revenue: $1,900 - Other current liabilities: $6,200 - **Total current liabilities**: $9,350 - Note payable: $15,000 **Total liabilities**: $24,350 **Stockholders' equity** - Common stock: $500 - Additional paid-in capital: $9,500 - Preferred stock: $5,000 - Retained earnings: $20,300 **Total stockholders’ equity**: $35,300 **Total liabilities and stockholders’ equity**: $59,650 --- ### KATE’S CARDS **Statement of Cash Flows** **Year Ended August 31, 2019** **Cash flow from operating activities** - Net income: $21,600 - Add depreciation: $3,250 - Increase in accounts receivable: ($11,000) - Increase in inventory: ($16,000) - Increase in prepaid expenses: ($1,000) - Increase in accounts payable: $6,200 - Increase in unearned revenue: $1,250 - Increase in other current liabilities: $1,900 **Cash provided by operating activities**: $6,200 **Cash flow from investing activities** - Purchase of equipment: ($17,500) **Cash used by investing activities**: ($17,500) **Cash flow from financing activities** - Proceeds from bank note: $15,000 - Issuance of common stock: $5,000 - Issuance of preferred stock: $10,000 - Cash dividends: ($1,300) **Cash provided by financing activities**: $28,700
Transcribed Image Text:### KATE’S CARDS **Balance Sheet** **August 31, 2019** **Assets** - **Current assets** - Cash: $17,400 - Accounts receivable: $11,000 - Inventory: $16,000 - Prepaid insurance: $1,000 - **Total current assets**: $45,400 - Equipment: $17,500 - Accumulated depreciation: $3,250 **Total assets**: $59,650 **Liabilities** - **Current liabilities** - Accounts payable: $1,250 - Unearned revenue: $1,900 - Other current liabilities: $6,200 - **Total current liabilities**: $9,350 - Note payable: $15,000 **Total liabilities**: $24,350 **Stockholders' equity** - Common stock: $500 - Additional paid-in capital: $9,500 - Preferred stock: $5,000 - Retained earnings: $20,300 **Total stockholders’ equity**: $35,300 **Total liabilities and stockholders’ equity**: $59,650 --- ### KATE’S CARDS **Statement of Cash Flows** **Year Ended August 31, 2019** **Cash flow from operating activities** - Net income: $21,600 - Add depreciation: $3,250 - Increase in accounts receivable: ($11,000) - Increase in inventory: ($16,000) - Increase in prepaid expenses: ($1,000) - Increase in accounts payable: $6,200 - Increase in unearned revenue: $1,250 - Increase in other current liabilities: $1,900 **Cash provided by operating activities**: $6,200 **Cash flow from investing activities** - Purchase of equipment: ($17,500) **Cash used by investing activities**: ($17,500) **Cash flow from financing activities** - Proceeds from bank note: $15,000 - Issuance of common stock: $5,000 - Issuance of preferred stock: $10,000 - Cash dividends: ($1,300) **Cash provided by financing activities**: $28,700
Expert Solution
Step 1

Financial Statement:

 

A financial statement is the complete record of financial transactions that take place in a company at a particular point of time. It provides important financial information like assets, liabilities, revenues, and expenses of the company to its internal and external users. It helps them to know the exact financial position of the company. There are four basic financial statements. They are:

 

  • Balance sheet
  • Income statement
  • Statement of owner’s equity
  • Statement of cash flows
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