The Donahoo Western Furnishings Company was formed on December 31, 2010, with $1,000,000 in equity plus $500,000 in long-term debt. On January 1, 2011, all of the fi rm’s capital

The Donahoo Western Furnishings Company was formed on December 31, 2010, with $1,000,000 in equity plus $500,000 in long-term debt. On January 1, 2011, all of the fi rm’s capital was held in cash. The following transactions occurred during January 2011. • January 2: Donahoo purchased $1,000,000 worth of furniture for resale. It paid $500,000 in cash and fi nanced the balance using trade credit that required payment in 60 days. • January 3: Donahoo sold $250,000 worth of furniture that it had paid $200,000 to acquire. The entire sale was on credit terms of net 90 days. • January 15: Donahoo purchased more furniture for $200,000. This time, it used trade credit for the entire amount of the purchase, with credit terms of net 60 days. • January 31: Donahoo sold $500,000 worth of furniture, for which it had paid $400,000. The furniture was sold for 10 percent cash down, with the remainder payable in 90 days. In addition, the fi rm paid a cash dividend of $100,000 to its stockholders and paid off $250,000 of its long-term debt. question 1 did Donahoo’s balance sheet look like at the outset of the fi rm’s life? question 2 did the fi rm’s balance sheet look like after each transaction? question 3 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. question 4 was Donahoo’s cash fl ow for the month of January? sItuatIOn 1 David Bernstein needs fi nancing his Lodi, New Jersey– based Access Direct, Inc., a six-year-old $3.5 million company. “We’re ready to get to the next level,” says Bernstein, “ but we’re not sure which way to go.” Access Direct spruces up and then sells used computer equipment for corporations. It is looking for up to $2 million in order to expand. “Venture capitalists, individual investors, or banks,” says Bernstein, who owns the company with four partners, “we’ve thought about them all.” question 1 is your impression of Bernstein’s perspective on raising capital to “get to the next level”? question 2 advice would you off er Bernstein as to both appropriate and inappropriate sources of fi nancing in

Do you need us to help you on this or any other assignment?


Make an Order Now