Below is Tim’s Coffee Shop Income Statement for the year for 2008. This is the m

Question

Below is Tim’s Coffee Shop Income Statement for the year for 2008. This is the most recent record Tim has. This year, several large businesses are moving in around his coffee shop and he expects business to increase. Tim needs to create a pro forma profit and loss (income) statement for this year.

Income Earned............................... $400,527

Expenses:
Salaries Expenses.............................$101,600
Rent Expense..................................$14,400
Depreciation Expense........................$12,116
Supplies Expense..............................$135,827
Lease Expense.................................$11,987
Tax Expense................................... $40,515
Interest Expense.............................. $615
Insurance Expense.............................$8,956

Total Expenses --------------------------------$326,016
Net Income ------------------------------------$74,511
====================================================================
I need to know if in each area in the pro forma income statement will increase, decrease or stay the same due to large businesses moving into the neighboring buildings into his area and explain the rationale why that line item will increase, decrease or stay the same. Tim serves coffee to many people who work in the area, so he would certainly expect a major increase in his business volume.
This is not looking for dollar figures, primarily your justification on why the line items will change and what direction they will change, if any. You may make assumptions based on the increased sales volume and how it will affect income and expenses, if/when you do make these assumptions, please describe them and their affects on each line item. These are the line items:
Income Earned
Expenses include:
Salaries
Rent
Depreciation
Supplies
Lease (on your refrigerator)
Tax
Interest (on loans currently held)
Insurance
Given what you have assumed and projected, will the total expenses increase or decrease? Why?
Given what you have assumed and projected, will the net profit increase or decrease? Why?

All your help on this will truly be appreciated and valued, as I truly am struggling to understand Accounting.

Explanation / Answer

Income Earned - Income earned will increased as the business volume will increase due to rise in population in nearby area. Expenses include: Salaries - Salaries will increase as the existing staff will have to work extra hours or the coffee shop will need to employ more staff to serve to increased number of customers. Rent - Rent will increase eventually because the property rates will go up after the establishment of large businesses in the locality. Depreciation - Will not change Supplies - Supplies will increase in accordance with the increase in the sales volume Lease (on your refrigerator) - Will not be affected Tax - Will not be affected Interest (on loans currently held) - Will not be affected Insurance - Will not be affected

Related Questions

Navigate

• Browse (All)
• Browse B
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.