Ribbons An’ Bows, Inc. Case Study

Case 1-1

Ribbons an’ Bows, Inc.

Table of Contents:

Cover page………………………………………………..………………..Page 1

Table of Contents ……………………………………...…………………..Page 2

Issues…………………………………………...…………………………..Page 3

Facts……………...………………………………………………………...Page 3

Analysis…………………………………………………………………….Page 4

Conclusion/Question 3………………………………………………….….Page 6

Issues:

1. How would you report on the three-month operations of Ribbons an’ Bows, Inc., through June 30?

1. Was the Company Profitable?
2. Why did its cash in the bank decline during the three-month operating period?

1. How would you report the financial condition of the business on June 30, 2010?
2. Do you believe Carmen’s first three months of operation could be characterized as “successful”?

1. Explain your answer.

Facts:

In January 2010, Carmen Diaz decided to open up a small ribbon shop in Coconut Grove, Florida.  Carmen made a business plan and asked relatives for financial assistance in funding her new business venture.  Carmen raised $11,000.  She was loaned $10,000 at 6% interest from two of her cousins, and she personally invested the remaining 1,000 in the equity of the business.

In March of 2010, Carmen’s uncle (a local attorney) waived his usual $600 fee and helped Carmen formally incorporate her business under the name “Ribbons an’ Bows”.  Carmen then proceeded to open a bank account and deposit all $11,000 in the account.  On that same day, Carmen signed an 18-month rental agreement, beginning on April 1, where Carmen would pay $600 per month on the last day of each month.  According to the rental agreement, Carmen also paid the last two months rent from the company bank account.

Carmen was ambitious to open her store by April 1.  In preparation, Carmen assembled the following items and/or completed the following tasks: Counters and display furniture left from the previous tenant (no cost to Carmen); Repainting of the store by the landlord (no cost to Carmen); Ordered, received, and paid for opening ribbon inventory and accessories; acquired a free cash register and credit card machine from the local credit-card charge processing company after paying a refundable deposit; Signed utility service agreements with the telephone and local service company; Ordered, received, and paid for store supplies; Ordered and paid for a used desktop computer with installed basic business software; and Placed and paid for advertising in the April 2 edition of a newspaper.

On March 31, 2010, Carmen reviewed the activity in her company’s bank account to make sure everything was working smoothly, and subsequently prepared a list of Ribbons an’ Bows’ assets and sources of capital.  

Carmen eventually expanded her business by creating custom ribbon table arrangements for weddings and other special events, and on May 1, she purchased a commercial sewing machine for $1800.

Whilst celebrating Independence Day at a family 4th of July party, Carmen’s two cousins who loaned her the $10,000 reminded Carmen of her promise to provide financial reports at the end of the four-month period between March 1 through June 30.  The next day Carmen gathered the appropriate information from the past four months, which showed the following:

1. Customers paid $7,400 cash for ribbons.  In addition, Carmen was owed $320 for a large wedding delivery from June 30.
2. Carmen paid a part-time employee $1,510 thus far.  She still owes the employee $90 for a weeks work in June.
3. Carmen paid rent for the three-month period, as per the rental agreement.
4. Carmen paid for inventory replenishments at $2,900.  Carmen’s estimated merchandise inventory on hand totaled $4,100 as of June 30.
5. Carmen’s initial office supplies were all but obsolete, with the exception of roughly $20 worth of supplies.

Carmen was puzzled when the company bank account showed $3,390 on June 30, instead of the $4,000 balance from April 1.  Also, she did not know how to state the following in her financial report:

1. Carmen had not paid interest on her cousins’ loans.
2. Carmen’s sewing machine, desktop computer, and computer software, which Carmen estimated to be worth money for longer than she anticipated.
3. The free legal work performed by Carmen’s uncle, as well as the cash register and credit card machine provided by the credit card processor.
4. Carmen’s anticipated salary and/or dividends that would commence as of July.

Analysis/Conclusion

1. Report on the three-month operations of Ribbons an’ Bows, Inc., through June 30:

Ribbon an’ Bows

Income Statement

   For the Period of April 1 to June 30, 2010