Question

CASE 1
Charlie Driver has $35,000 saved and has decided to attend college, taking courses in marketing and retailing. To help pay his tuition and living expenses, he contracted with a mobile catering company as an independent driver. Charlie will run his mobile catering business on a cash basis; he has named his business Charlie’s Convenient Catering, or the 3C Company for short.

The company sold Charlie, the business's sole owner, $35,000 in Common Stock. The company deposited the $35,000 into the company’s bank account.

The company bought a used, fully equipped mobile catering truck for $29,000, and operated from January 4 to December 31, 2005.

At the end of the year, the company had $28,110 in the bank and $208 in a cash drawer (total ending “Cash” of $28,318.

The company PAID Invoices shows that the company purchased food, beverages, and supplies inventories for $48,222.

The company counted Year ending inventory remaining on the truck of $280. Use the Inventory equation to calculate the Cost of Goods Sold.   Cost of Goods Sold = Beginning inventory + purchases – ending inventory.

The company PAID invoices for truck operating expenses paid in cash total of $3,288.
The company had one UNPAID truck operating expense invoice for a truck repair for $188.

The company paid Charlie Driver a monthly salary of $2,400 a month for his labor to manage the business and operate the truck. (12 months x $24,000 = 28,800 annual salary; ok to input this as a total entry in your JE’s and T-accounts).

The truck has a five-year life and a residual value of $4,000, and straight-line depreciation is to be used.
(Formula for Annual Depreciation is (First cost – Residual value) / Life in years

Charlie asks you to help him put together his business information and reconstruct his cash sales. He recorded his daily cash sales in a notebook that cannot be found. Calculate 3C Company’s sales revenue and prepare an accrual income statement.

Charlie is concerned that he has less cash now than he had when he started. Explain why he should not worry and that he had a great first year.

1.The Standard Format for a simple journal entry: Write the Journal Entry and Post to the T-account

Additional Questions:
1. What were 3C’s sales revenue?
2. At the end of the year, what was the book value of the truck after the depreciation expense is taken.
3. Charlie is concerned that he has less cash now than he had when he started. Explain why
4. Prepare a simple income statement.
5. Prepare a simple balance sheet, use the Net Income from #4 above for that value on your balance sheet.

Answer 1

1. 3C's sales revenue: $ 102,628

2. Book value of the truck = $ 29,000 - $ 5,000 = $ 24,000

3. Charlie has less cash at the end of the year, as assets have been acquired for cash, and expenses have been paid in cash. Liabilities and accruals are very low.

4.

Income Statement
Revenue
Sales Revenue		$ 102,628
Expenses
Cost of Goods Sold	$ 47,942
Salaries Expense	28,800
Depreciation Expense	5,000
Truck Operating Expense	3,476
Total Expenses		85,218
Net Income		$ 17,410

5.

3C Company Balance Sheet End of Year 1
Assets		Liabilities and Stockholders Equity
Cash	$ 28,318	Accounts Payable	$ 188
Inventory	280	Common Stock	35,000
Truck	24,000	Retained Earnings	17,410
Total Assets	$ 52,598	Total Liabilities and Stockholders Equity	$ 52,598

Computation of cash sales:  

Cash
Issuance of common stock	35,000	Purchase of truck	29,000
		Payment for supplies	48,222
Cash sales ( plug value)	102,628	Truck operating expenses	3,288
		Salaries	28,800
End. bal.	28,318