Question

I am not quite sure how to solve this problem, if you could break it down step by step, that would be great! Thank you!

The Toronto Diner, opened a sole proprietorship by Felix Fudd, recorded the following transactions during it's first initial month of operations:

1. Rented facilities for $3,000 per month and paid the lessor $9,000 for the first three months.

2. Purchased equipment costing $30,000 on the first of the month. The diner put 20 percent down and borrowed the remainder from Second Bank. (Equipment will be depreciated over 60 months using the straight line med. assume a $3,000 salvage value).

3. Sold 1,800 meals during the first month at an average sales price of $15. Twenty percent of the meals were sold on an account, while the remainder were cash sales. None of the charge sales were collected by the end of the first month.

4. The cost of food sold percentage is 30%. Food purchases totaled $10,000 during the first month, of which 60 percent were paid for during the month.

5. Paid labor costs of 30% of sales during the month.

6. Paid all other expenses, which totaled $6,000, with cash

7. Felix opened the business on the first of the month by inviting $50,000.

8. Felix's tax rate is 30%. Taxes will be paid subsequent to the first month.

PROBLEMS TO SOLVE

1. Determine the net income for the first month of the business.

2. Determine the total sources and use of cash for the first month.

Answer 1

$ 27,000 1800*15 Sources of Cash Cash Sales Common stock Total Cash received $ $ $ 21,600 27000*80% 50,000 71,600 10000*30% 27000*30% Income Statement Sale of Meals Less: Expenses Cost of food $ 3,000 Labour cost $ 8,100 Lease rent Expenses $ 3,000 Depreciation Expenses $ 450 Other Expenses $ 6.000 Total Expenses Income before tax Less: Income tax expenses Income after tax (30000-3000)/60 $ Uses of Cash Lease rent $ Downpayment of Equipment $ Purchase of food $ Labour cost $ Other Expenses Incuired $ Cash used $ 20,550 6,450 1,935 6450*30% 4,515 9.000 6,000 30000*20% 6,000 10000*60% 8,100 6,000 35,100 $ $ $