Question

ENGITE 566 Finance for Engineering management Homework #1 Due February 14 Problem l Using the example for the hardware store in the book "Understanding Finance Statements" oin page 9, please prepare a balance sheet for the end of week 2, 3, 4, & 5 (four balance sheets). XYZ HARDWARE AND BUILDING SUPPLY DECEMBER 31, YEAR BALANCE SHEET ASSETS LIABILITIES& NET WORTH Cash Accounts receivable Inventory Total Current Assets S2,000Accounts Payable 18,000 65,000 95,000 $ 297,000Tol Current Liabilities 178,000 85,000Notes Payable 210,000 Accruals Land/Buildings 144,000 50,000Total Long Term Debt 144,000 50,000 Mortgage ipment Furniture & Fixtures Total Fixed Assets 25,000 Total Liabilities $ 322,000 $125,000 Net Worth $100,000 Total Assets $ 422,000otal Liabilities & Net Worth S 422,000 The above example represents the first week of business Balance Sheet (Gill J. 1999) Assumptions: 1) Assume that $25,000 of inventory will be sold in week 2, and the gross margin is 25% of sales 2) Sales increase by $5000 each week for the following three weeks. Sales proportion of credit vs. cash will be 60% cash vs 40% credit. For simplicity, assume sales are made on the first day of the week 2) Add a weekly expenses of $3,000 for wages and other expenses. This will be paid from the cash account at the end of each week. Shall be subtracted from the Net Worth beginning 3) The receivable and payable amount for week one will be received and paid at first day of week 4) Accruals will be due for payment every quarter Instructor Dr. Brian Lilly

Answer 1

Assets						Liabilities
	1	2	3	4	5		1	2	3.00	4.00	5.00
Cash	2000	19000	42000	68000	164000	Accounts Payable	18000	18000	18000	18000	0
Account Receivable	85000	98333.33333	113666.6667	131000	65333.33333	Notes Payable	65000	65000	65000	65000	65000
Inventory	210000	185000	156250	123750	87500	Accruals	95000	95000	95000	95000	95000
Total Current Assets	297000	302333.3333	311916.6667	322750	316833.3333	Total Current liabilities	178000	178000	178000	178000	160000
Land/Building	50000	50000	50000	50000	50000	Mortgage	144000	144000	144000	144000	144000
Equipment	50000	50000	50000	50000	50000
Furniture and Fixtures	25000	25000	25000	25000	25000
Total Fixed Assets	125000	125000	125000	125000	125000	Total Long term Debt	144000	144000	144000	144000	144000
						Networth	100000	105333.3333	114,916.7	125,750.00	137,833.33
	422000	427333.3333	436916.6667	447750	441833.3333		422000	427333.3333	436916.6667	447750	441833.3333

Note 1

	2	3	4	5
Sales	33333.33	38333.33	43333.33	48333.33
Cash sales (60%)	20000	23000	26000	29000
Credit (40%)	13333.33	15333.33	17333.33	19333.33
Inventory (75% of sales)	25000	28750	32500	36250
Gross margin (25% of sales)	8333.333	9583.333	10833.33	12083.33

Assumptions
1,2	25000 inventory will be sold in week 2 with 25% margin hence first week sales will be (25000*75%)*100%=33333.3), Subsequent week sales will be increased by 5000 as given in assumption 2. Inventory of every week will be reduced by cost of sales and cash and receivable balance will be increase as per proportion given in assumption 2.Further GP margin will be added in networth. (Refer Note 1 for calculations)
2	Weekly expenses of 3000 is in cash hence cash will be reduced by 3000 and networth will be reduced by 3000 since it is item to be reduced from gross margin
3	Receivable and payble of week 1 will be deducted from receivable and payable of week 5 since these are recovered and cash will be adjusted accordingly
4	Accrual will be continue till week 5 since it will be paid ay the end of quarter.
	Rest of the item of balane sheet will continue as it is