Accounting homework help. Question 5: A close friend of yours comes to you seeking an additional investment. Their business is up and running, but they are experiencing some issues related to their lack of experience. Their cash flow has been negative each of their first three months and they don’t have enough cash to meet their short-term debts. They are looking for $200,000 for 20% of the business ownership (valuing the business at $1,000,000). The industry average Net Profit Margin is 16%; it is a young, fragmented industry that is growing at approximately 2.5% per year for the past five years. Based on the following 3 month Income Statement, would you be willing to invest in your friends business? Discuss in detail the factors that would encourage/discourage you from making this investment?
 

	January	February	March
Gross Sales	$400,000	$402,000	$404,010
Product Returns & Discounts	$12,000	$14,070	$15,150
Net Sales	$388,000	$387,930	$388,860
Cost of Goods Sold	$124,160	$131,896	$136,101
Gross Profit	$263,840	$256,034	$252,759
Expenses – General & Administrative
Salaries & Wages	$68,000	$68,340	$68,682
Payroll Taxes	$12,000	$12,060	$12,120
Employee Benefits	$16,000	$16,080	$16,160
Building Lease Payment	$30,000	$30,000	$30,000
Utilities	$16,000	$16,080	$16,160
Equipment Lease Payment	$4,700	$4,700	$4,700
Insurance	$1,000	$1,000	$1,000
Marketing	$12,000	$12,000	$12,000
Interest on Loans	$26,000	$26,000	$26,000
Depreciation & Amortization	$4,500	$4,500	$4,500
Total Expenses	$190,200	$190,760	$191,323
Net Income	$73,640	$65,274	$61,436
Net Profit Margin	19%	17%	16%

 
 
 
Question 6: Complete the following 3-month Cash Flow Document based on the information provided at the end of the table. Based on the three-month trend, do you feel that this business is in a strong or weak cash position at the end of three months and why?

	January 2019	February 2019	March 2019
Opening Cash Balance	$100,000
Cash Flow from Operating Activities:
Net Income
Additions (Sources of Cash)
Decrease in A/R
Decrease in Inventory
Increase in A/P
Increase in Accrued Expenses
Depreciation
Total Additions from Operations
Subtractions (Uses of Cash)
Decrease in A/P
Decrease in Accrued Expenses
Increase in A/R
Increase in Other Current Assets
Increase in Inventory
Total Subtractions from Operations
Total Changes from Operating Activities:
Cash Flow from Investing Activities:
Purchase/Sale Equipment
Purchase/Sale Vehicles
Purchase/Sale Furniture
Purchase/Sale Office Equipment
Total Changes from Investing
Cash Flow from Financing Activities:
Increase/Decrease in Long-Term Notes Payable
Increase/Decrease in Mortgage Payable
Total Changes from Financing
Cash Balance at End of Month:
	Jan	Feb	Mar
Balance Changes
Net Income	($38,000)	($22,000)	$12,000
Accounts Receivable	Inc $2,500	Inc $1,500	Dec $1,000
Accounts Payable	Inc $5,000	Dec $1,000	Dec $4,000
Inventory	Inc $10,000	Dec $2,500	Dec $2,500
Accrued Expenses	Inc $1,000	Inc $1,000	Dec $2,000
Purchased New Equipment	Inc $5,000	Inc $5,000	$0
Purchased New Furniture	$0	$0	Inc $10,000
Purchased New Vehicles	$0	$20,000	$0
Mortgages	$0	$0	Inc $50,000
Long Term Notes Payable	Inc $10,000	Inc $10,000	Dec $20,000

Inc = an increase in the balance of the account from the previous month
Dec = a decrease in the balance of the account from the previous month
( ) = A net loss
 

Accounting homework help