Case Study Donahoo's Balance Sheet

516 Words2 Pages

The balance sheet provides a snapshot of a firm’s financial position at a specific point in time, by using the company’s Asset and Debit Equity.
The Assets consists of: Current assets are highly liquid (cash, receivables, and inventories), Fixed assets can be capital-intensive assets which are permanent, and other assets can be intangible (patents, copyrights, and goodwill).
The Debt and equity consists of: Debt capital which are short-term debt (accounts payable, accrued expenses, and short-term notes) which is repaid within one year, while long-term debt (bank loans) is repaid over one year, and the owners' equity are the initial investment plus the firm’s retained income.
Situation 1
1. What did Donahoo’s balance sheet look like at the …show more content…

Ignoring taxes, determine how much income Donahoo earned during January. Prepare an income statement for the month. Recognize an interest expense of 1 percent for the month (12 percent annually) on the $500,000 long-term debt, which has not been paid but is owed.
January 3 January 31 Jan 1 – Jan 31
Revenues $ 250 $ 500 $ 750
Cost of goods sold (200) (400) (600)
Gross profits/operating profits $ 50 $ 100 $ 150
Interest expense (1%/month) -- -- (5)
Net Income $ 50 $ 100 $ 145
4. What was Donahoo’s cash flow for the month of January?

Beginning cash (January 1) $ 1,500
Ending cash (January 31) 700
Net change in cash $ (800)

Free cash flow
Operating Perspective
Operating income $ 150
Depreciation Expense ---
EBITDA $

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