Adventure Sports is a retailer of camping and related gear that is targeting the

Question

Adventure Sports is a retailer of camping and related gear that is targeting the college marketplace. A store recently opened near your campus, and two of your accounting professors stopped by. While talking with you afterwards, one faculty member predicted that Adventure would be successful. The other faculty member predicted that it would fail within five years. They then asked your opinion.

Using only the following financial statements of Adventure Sports, write an email to your professors demonstrating how both might be correct. Use the income statement to discuss current trends on profitability and use the balance sheet to discuss how the company might be exposed if the current trends in profitability change significantly.

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Comparative Balance Sheets
December 31
(in thousands)

Assets 2009 2008
Cash $240 $209
Accounts Receivable 45 51
Inventory 1,064 1,017
Total Current Assets 1,349 1,277
Property and Equipment, net 123 128
Total Assets $1,472 $1,405

Liabilities 2009 2008
Accounts Payable $380 $366
Short-term Debt 243 206
Total Current Liabilities 623 572
Long-term Debt 700 700
Total Liabilities 1,323 1,272
Equity
Common Stock 110 110
Retained Earnings 39 23
Total Stockholders' Equity 149 133
Total Liabilities and Stockholders' Equity $1,472 $1,405

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Comparative Income Statements
For the years ending December 31
(in thousands)

2009 2008 2007
Sales $1,432 $1,226 $980
Cost of Sales 1,129 980 804
Gross Profit 293 246 176
Operating Expenses:
Advertising Expense 178 150 108
Salaries Expense 48 46 41
Administrative Expenses 22 23 17
Operating Income 45 27 10
Interest Expense 24 17 8
Income Before Taxes 21 10 2
Income Tax Expense 8 3 1
Net Income $13 $7 $1

Explanation / Answer

 

1.From the above income statement Net income has been steady over the 3 years.

2. Taxable expense has increased in 2009 ,than 2008 .

3. Adevertising expenses and other operating expenses were increased accordingly to sales.

 

  in thousands Assets  2009 2008 Increase /decrease Cash $240 $209 $31 Accounts Receivable 45 51 ($6) Inventory   1,064 1,017 $47 Total Current Assets 1,349 1,277 $72 Property and Equipment, net  123 128 ($5) Total Assets   $1,472 $1,405 $67     $0 Liabilities 2009 2008 $1 Accounts Payable $380 $366 $14 Short-term Debt  243 206 $37 Total Current Liabilities 623 572 $51 Long-term Debt  700 700 $0 Total Liabilities  1,323 1,272 $51 Equity     $0 Common Stock   110 110 $0 Retained Earnings  39 23 $16 Total Stockholders' Equity 149 133 $16 Total Liabilities and Stockholders' Equity $  1,472 $1,405 $67

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