Explore BrainMass

# Funkie Video Inc.

This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

Activity 2

FunkieVideo.com, a hypothetical start-up, opened for business on April 1 this year. FunkieVideo.com allows anyone to upload short personal videos, on which viewers then vote each month. The videos with the most votes will receive cash and other rewards, with a "grand prize" in a runoff among the winning monthly videos each year.
You are the founder and president. You have not yet hired an accountant but your bank is asking for an income statement and balance sheet for the first month of operation.
Neither the Income Statement nor Balance Statement needs to be "correct."
Worksheet is used to enter transactions: 10%
Income Statement shows only revenue and expenses in proper categories: 20%
Balance Statement shows assets, liabilities, equity items in correct categories; retained earnings number is same number shown for profit or loss: 20%
Statements show fundamental understanding of the concept of accrual accounting: 50%
Using the financial ratio worksheets provided below, compute the following for the years ending Jan 31, 2004 and 2005:
1. Current ratio
2. Quick ratio
3. AR Collection Period in days
4. Inventory Turnover in days and times per year
5. Net Profit Margin
Activity 3
Using the financial ratio worksheets provided below, compute the following for the years ending Jan 31, 2004 and 2005:
1. Current ratio
2. Quick ratio
3. AR Collection Period in days
4. Inventory Turnover in days and times per year
5. Net Profit Margin
Write a one-page memo advising the reader what these numbers tell us about the financial health and trend of this company.
1. Correct solution for the five calculations (10%@=50%) showing the calculations as well as the answer

o Deduct 10% for answers only (1 points per calculation)
o Deduct 10% for each with correct numbers in formula but math error in calculation (1 points per calculation)
2. One-page memo advising the reader what these numbers tell us about the financial health and trend of this company. (50%)

Submission Instructions
1. Complete the provided financial ratio worksheet.
2. Create your memo in the form of a Microsoft Word document.

Name

FunkieVideo.com, a hypothetical start-up, opened for business on April 1 this year. FunkieVideo.com allows anyone to upload short personal videos, on which viewers then vote each month. The videos with the most votes will receive cash and other rewards, with a "grand prize" in a runoff among the winning monthly videos each year.

You are the founder and president. You have not yet hired an accountant but your bank is asking for an income statement and balance sheet for the first month of operation.

Transactions:
1. You started your company with \$100,000 that you raised by selling stock in FunkieVideo.com, Inc. to your family and friends.
2. You purchased 26 high end servers you will need for \$3,000 each, paying cash. You believe these devices will last five years before you replace them. At the end of the 5 years, you think you can sell them all for a total of \$3,000.
3. Knowing that you would need additional funds, you took a \$50,000 loan at 12% annual interest rate from the bank, using the servers as collateral.
4. At the start of the month you spent \$2,000 on enough materials used in the production process for sample videos, for which you were invoiced. This is a one month supply of materials.
5. A PR agency charges you \$500 for the promotion services (they hope for more business as you grow). You plan on paying the bill next month.
6. Rent for the space you have leased is \$1,000 a month, which you paid.
8. You pay your freelance programmer \$2,000 at the end of the month.
9. One of your advertisers paid the \$200 invoice you sent earlier in the month.
10. You write the check for the interest on the loan owed for the month.
11. You send payment of \$300 towards the supplies that you bought earlier in the month.
12. You record one month of depreciation on the servers.

Assets Liabilities Equity
Cash Accounts
Receivable Materials Equip (Accum.
Deprec.) = Notes
Payable Accts.
Payable Common
Stock Retained
Earnings Revenue (Expense)

FunkieVideo.com, Inc.
Income Statement
Month ended April 30, 20xx

Revenues \$

Operating Expenses

Rent

Wages

Materials

Depreciation

Total operating expenses \$

EBIT (Loss)

Interest expense

Net Profit (Loss) \$

FunkieVideo.com, Inc.
Balance Sheet
April 30, 20xx

ASSETS
Current Assets
Cash \$

Accounts Receivable

Materials

Total Current Assets

Fixed Assets
Servers

Less accumulated depreciation

Net Fixed Assets

Total Assets \$

LIABILITIES
Current Liabilities

Accounts Payable

Total Current Liabilities
Long term Liabilities
Bank Loan Payable

Total Liabilities

\$

STOCKHOLDERS' EQUITY
Common Stock

Retained Earnings (Loss)

Total Stockholders' Equity

Total Liabilities & Stockholders' Equity \$

#### Solution Preview

MEMO
The financial position of FunkieVideo.com, a startup in online videos has been analyzed based on the balance sheet, income statement and ratio analysis. The balance sheet and income statement has been prepared based on the transactions that took place during the first month which is April 20xx. During the first month of operations, FunkyVideo managed to earn \$2,000 in revenues while the expenses were \$5050. It gave earnings before interest and tax of ...

#### Solution Summary

Preparation of balance sheet and income statement for Funkie Video Inc is provided.

\$2.19