- How would you report on the three-month operations of Ribbons an’ Bows through June 30? Was the company profitable? (Ignore income taxes.) Why did its cash in the bank decline during the three-month operating period? (Support your answer with clear computations). Your answer should also include the statement of comprehensive income and an analysis of cash flow for the 3 months ended 30 June 2018.
- How would you report the financial condition of the business on June 30, 2018? Your answer should include the statement of financial position as at 30 June 2018.
- Do you believe Carmen’s first three months of operation could be characterized as “successful”? Justify your answers.
Carmen also was concerned about how she should reflect the following in her financial report:
- No interest had been paid on the cousins’ loan.
- The expenditures made for the desktop computer and its related software and the commercial sewing machine. She believed these expenditures would be beneficial to the business long after June 30. At the time she purchased the commercial sewing machine, Carmen estimated that it would be used for about five years from its May 1 purchase date, when it would then have to be replaced. Similarly, on March 31, she had estimated the desktop computer and its software would have to be replaced in two years’ time. Carmen believed the sewing machine and the computer along with its software wouldhave no resale value at the end of their useful lives.
- The free legal work performed by her uncle and the free cash register provided by the Local credit-card charge processor.
- Carmen had not paid herself a salary or dividends during the four months of operations. If cash was available, she anticipated that sometime in July she would pay herself some compensation for the four months spent working in the business. Before starting her business, Carmen had worked for RM1,300 a month as a cashier in a local grocery store.