Each autumn, as a hobby, Suzanne De Angelo weaves cotton placemats to sell at a
ID: 2766267 • Letter: E
Question
Each autumn, as a hobby, Suzanne De Angelo weaves cotton placemats to sell at a local crafts shop. The mats sell for $20 per set of four. The shop charges a 10% commission and remits the net proceeds to De Angelo at the end of December. De Angelo has woven and sold 25 sets each of the last two years. She has enough cotton in inventory to make another 25 sets. She paid $7 per set for the cotton. De Angelo uses a four-harness loom that she purchased for cash exactly two years ago. It is depreciated at the rate of $10 per month. The accounts payable relate to the cotton inventory and are payable by September 30. De Angelo is considering buying an eight-harness loom so that she can weave more intricate patterns in linen. The new loom costs $1,000; it would be depreciated at $20 per month. Her bank has agreed to lend her $1,000 at 18% interest, with $200 principal plus accrued interest payable each December 31. De Angelo believes she can weave 15 linen placemat sets in time for the Christmas rush if she does not weave any cotton mats. She predicts that each linen set will sell for $50. Linen costs $18 per set. De Angelo’s supplier will sell her linen on credit, payable December 31. De Angelo plans to keep her old loom whether or not she buys the new loom. The balance sheet for her weaving business at August 31 is as follows: SUZANNE DE ANGELO, WEAVER Balance Sheet August 31 Current assets: Current liabilities: Cash $ 25 Accounts payable $ 74 Inventory of cotton 175 200 Fixed assets: Loom 500 Owner’s equity 386 Accumulated depreciation (240) 260 Total assets $ 460 Total liabilities and owner’s equity $460
Explanation / Answer
CASH BUDGET
Budgeted Income statment
Budgeted baalnce sheet
621* => 386 +235(Net Income)
611**=> 386 +225(Net Income)
Answer 2
De anglo should continue to weave the place mats in cotton using the existing loom as it gives ending cash balance $401 as compare to $96 in new looms
Answer 3
Non financial factors might De Angelo consider in her decision is that, she might think that with thw new loom, she may weave more creativ e& attractive mats rather tah with the old looms
CASH COLLECTIONS COTTON LINEN Begg. Bal of cash 25 25 Sales 450 675 Total Cash Available 475 700 CASH DISBUSMENTS A/P 74 74 Cost of lineen 270 Purchases of newloom 1000 Total cash Disbursments 74 1344 Ending cash balance before financing 401 (644) FINANCINg Borrowing 1000 Repaymenst (200) Interest payments (60) Total effect of financing 740 ENDING CASH BALANCE 401 96Related Questions
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