John O’Sullivan graduated in May 2018 from UIC and looked everywhere for a job. He searched and searched for a decent job, and after a while he decided that the only way to get ahead was to start his own business. In order to support himself, John decided to pursue a life-long dream of owning a hot dog cart business in downtown Chicago. Without any substantial savings of his own, John borrowed $3,600 to purchase a hot dog cart from the local bank at an interest rate of 2.0% per year, with a loan duration of three years. Computed using simple interest formula, his annual interest payment is $72. To fund start-up costs, John sold his car to buy basic supplies like hot dogs, buns, wrappers, and all the condiments (e.g., mustard, relish, onions, etc.) to make a great hot dog. For accounting purposes, John considers the “supply” cost per one piece of hot dog sold as $0.65. John always buys supplies in quantities of 1,000 to ensure an adequate inventory supply. John hired his best friend from school, Jim, to help work with the hot dog cart. Jim works 40 hours per week (2080 hours per year) at the rate of $8.00 per hour. To be a good employer, John provides benefits to Jim. The cost of these benefits is 29% of Jim’s total salary. Note: John’s own compensation is based on the bottom line (i.e., profit or loss) of the business.
The price of each hot dog is $3.00. Condiments are free. In addition to selling to the public, John has a contract with the Chicago police department — this contract provides the local police with a $1.75 discount for each purchased hot dog. Further, John is charitable and provides free hot dogs to needy families that can’t afford to pay. Sometimes, when a good customer forgets their wallet, John will give them a hot dog based on their promise to pay the next day (John truly is a good guy). As part of owning a business, John also has the need to purchase insurance to protect his business against the threat of fire, flood, or theft. Insurance cost is $160 per year. According to generally accepted accounting principles (GAAP), John should depreciate the hot dog cart in equal amounts over five years (straight line). Assume that due to his charitable nature, John’s business is tax exempt. (See additional information below, i.e. 4a and 4b, etc.).
1 If John sold a total of 18,500 hot dogs (includes 6,750 sold to policemen), what is the total or gross
revenue for the year?
2 Assuming that John provided an average of 45 free hot dogs per month to needy families, and adding
the discount given to members of the policemen, what is the total contractual and charity allowances
for the year?
3 Calculate the Net Revenue. [Net Revenue = Total Charges minus Discounts]
4 What is the annual principal payment? The annual interest payment?
4.a Construct an Income Statement (Statement of Revenue and Expenses) for John’s hot dog business.
Use the information from the case scenario and from the questions. (Income Statement Template
(submit Excel spreadsheet)
4.b During the course of the year, customers “forgot” their wallets 375 times. Of these occasions, John
expects to never receive payment for 350 hot dogs (bad debt). On the other 25 pieces of hotdogs, he
is still holding out hope and believes payment will be received (accounts receivable). Include these
items on your financial statement.
(submit Excel spreadsheet)
5 What is the Operating Margin? (in percent) – operating margin is a measure of the level of
profitability experienced in a firm’s operations.
6 What is the amount of total fixed assets (equipment) at the end of the year? (consider 1 year
7 Assuming there are no more equipment purchases, what will be the value of total fixed assets at the
end of the second year? (consider 2 years depreciation)
8 What is the value of inventory at the end of the year? Inventory is the total goods on hand and
available to sell, presumably within a year.
9 What is the value of Accounts Receivable at the end of the year? See item 4b above.
10 Assuming that the Balance Sheet shows Total Assets of $5,180, and Total Liabilities of $3,400, what
is the value of Net Assets?
Project 1: Building a Financial Statement
Instructions: Read through the scenario and complete items 1-10 below. Build your financial statements in Excel
spreadsheet (template provided), using various formula to show your work. Your instructor should be able to change
a few values and see the new resulting totals and margins. Answer the remaining questions in this document and
10 points total for this assignment. Please see grading rubric in Blackboard.
Answer all the 10 questions in pages 2 to 3 below.
Submit answers to 10 questions in MS Word in appropriate field in Blackboard.
Submit the Excel spreadsheets for your Income statement and Balance sheet in appropriate field in
The purpose of this project is to accomplish the course objective: Apply the concepts of financial statements and perform
financial performance measurements. (Domain IV.A. Revenue Cycle and Reimbursement). AHIMA Entry-Level Competencies
for Health Information Management (HIM) at the Baccalaureate Level relevant to this course are listed below (AHIMA Council
for Excellence in Education, 2014).
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