Evaluating the Transformation Process Italiano Pizza Company has just completed its first month in business. The owners, Charla and Maria, had previously worked for a major pizza chain but were convinced that they could offer a better product in a better atmosphere. They knew the importance of accurate financial records and hired a bookkeeper. Yesterday, the bookkeeper hand delivered financial statements to the owners and announced her resignation. You have been retained by Charla and Maria to interpret the following financial information and explain its significance.
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Italiano Pizza Company |
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Balance sheet accounts |
Income statement accounts |
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Assets: |
Liabilities Owners” Equity: |
Revenues |
$4,000 |
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Cash |
$2,240 |
Wages payable |
$180 |
Expenses: |
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Food products |
980 |
Advertising payable |
400 |
Store rent |
800 |
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Supplies |
1,000 |
Loan from bank |
6,800 |
Food products |
1,475 |
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Prepaid rent |
2,400 |
Owners” investment |
4,340 |
Wages |
990 |
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Equipment |
5,150 |
Advertising |
1,430 |
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Accumulated |
Interest |
40 |
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depreciation |
50 |
Supplies |
375 |
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Total$11,720 |
$11,720 |
Total |
$11,720 |
Depreciation |
50 |
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Net income |
$1,160 |
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Required
A. Discuss whether the information provided could be helpful to the owners and, if so, describe how. If not, describe why not.
B. Identify at least 10 events that occurred as part of the transformation process during the firm”s first month in business. For each event, identify the amount of cash involved.
C. Did Charla and Maria make a good judgment when they decided to get into this business? Would you recommend that they continue with the pizza business or discontinue it? What additional information would be helpful to you in making such a recommendation?