Huckle’s Piano Service Accounting Assignment

Huckle’s Piano Service Accounting Assignment

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Instructions

Huckle’s Piano Service Accounting Assignment

Financial Review – Instructions

Piano Service Accounting Assignment

Assignment #2: Huckle’s Piano Service

Dudley Huckle repairs a variety of keyboard instruments from his shop in Belleville, ON. He started out on his own two years ago after buying the business of his mentor, Ludwig Mozart. The business employs 6 piano repair techs, plus Dudley. Currently, they tune and fix pianos in eastern Ontario, but Dudley believes the business can grow if he hires some new employees and opens a new office closer to Toronto. His services are sold to the major music shops in the area and, although he occasionally tunes pianos for individuals, he wants to focus on his B2B business. Piano Service Accounting Assignment

Dudley’s accountant has just finished the Current Year (actual) financial statements, so Dudley now has two full years of actual results to compare with each other. Because he knows that it is important to plan and budget for the future, Dudley has also prepared a Plan for next year. This incorporates Dudley’s idea to hire new staff and open a new office. He wants to increase his return on equity, so he is planning to finance this expansion by simply getting another loan from his bank.

Approximately 75% of Dudley’s sales are on credit. 25% are cash sales. 65% of Dudley’s purchases are on credit

At the beginning of the year, Dudley rented much of his equipment and tools. He has since bought out some of Mozart’s assets at auction, and plans to buy more equipment since he feels that renting is really expensive.

Required:’ Piano Service Accounting Assignment

1. Using Excel formulas, complete the missing information, ie the coloured cells, in the attached worksheet (totals, Income Taxes,

% differences between years and plans, etc).

2. Perform a horizontal analysis comparing the Actual amounts for the current year to last year’s results, and also to the Planned amounts for next year. Discuss any items you think are unusual, unrealistic, good, bad, or otherwise interesting

3. Calculate the financial ratios indicated in the coloured cells. Comment on the company’s performance in the areas of

profitabillity, efficiency, liquidity, and leverage. What do you think of Dudley’s plan to expand, and how he intends to finance it?

Marks will be awarded as noted in the yellow cells.

Save your completed Excel file, ensuring your name is included in the file name. Submit the completed Excel file via Blackboard before the end of the day Wednesday March 9.

Hints:

1)

Last year was the first year of operations, so some of last year’s ratios require a slightly different calculation. These have been provided for you.

2)

Cash Flow From Operations is one of the required calculations.

To calculate this number, take Net Income and add back the Depreciation expense, to arrive at Net Income before Depreciation (“NIBD”). Then calculate any increase or decrease in Working Capital from the beginning to the end of the period. (Working Capital for this purpose is Receivables plus Inventory, minus Current Liabilities). An increase in Working Capital should be deducted from NIBD, and a decrease in Working Capital should be added to NIBD, in order to arrive at Cash Flow From Operations. Piano Service Accounting Assignment

‘Piano Service Accounting Assignment

Worksheet

Student Name			Student Number
Dudley Huckle repairs a variety of keyboard instruments from his shop in Belleville, ON. He started out on his own two years ago after buying the business of his mentor, Ludwig Mozart. The business employs 6 piano repair techs, plus Dudley. Currently, they tune and fix pianos in eastern Ontario, but Dudley believes the business can grow if he hires some new employees and opens a new office closer to Toronto. The Actual results from his first two years in operation are shown below, plus Dudley’s plan for next year, which includes an expansion of the business. Piano Service Accounting Assignment			Piano Service Accounting Assignment
Financial
Compare your Actual results to last year’s Actual results, and
	Compare this year’s actual results to Next Year’s Plan
As at:	Actual results:			Next year	% Change:			GRADE
Date	This year	Last year	Increase or (Decrease) %	Plan	Next year Plan vs This Yr Actual
Balance sheet
Cash	$ 28,138	$ 48,375		$ 73,217
Receivables	127,500	42,000		102,610
Inventory	53,125	43,000		40,625
Total current assets
Long-term Assets
Property, Plant, Equip	370,625	215,625		547,500
Other assets	25,000	18,750		26,250
Total assets’ Piano Service Accounting Assignment			Piano Service Accounting Assignment
Current liabilities	$ 130,201	$ 49,000		$ 180,049
Long term liabilities	265,625	118,750		394,687
Equity	208,562	200,000		215,466
Total liabilities and equity
Income statement
Sales Revenue	$ 906,250	$ 859,375		$ 1,208,000
Cost of goods sold	171,875	153,125		237,500
Gross profit (0.5 marks)						0.5 marks		0.5
Operating Expenses:
Salaries	352,375	346,875		469,833
Rent/occupancy	89,375	84,225		115,000
Equipment Rental	18,100	34,375		9,520
Marketing and Sales	42,375	40,625		75,250
Travel	43,125	34,375		61,000
Office expenses	87,500	84,375		98,250
Other operating expenses	15,610	21,875		18,400
Depreciation	62,500	37,500		93,250
Operating Income (EBIT) Piano Service Accounting Assignment
Interest/financing fees	13,342	3,750		21,875
Income Before Tax (EBT) (0.5 marks)						0.5 marks		0.5
Income Taxes (=15% of positive EBT)
Net income (0.5 marks)						0.5 marks		0.5
Cash Flow from Operations (0.5 marks)						0.5 marks		0.5
Financial ratios (3 marks)	This year	Last year	Potential Questions	Next Year Plan
Gross margin			– Are your products properly priced to cover your operating costs?
Operating Margin Piano Service Accounting Assignment			– Does the business make an adequate return before financing costs and taxes?			1 mark		1
Net margin			– Is this an adequate & sustainable amount of profitability?
Return on Equity		15.53%	– Are your shareholders receiving an adequate return on their investment in the company?
Return on Assets		8.45%	– Are the assets generating a reasonable level of sales?			1 mark		1
Average Collection Period (in days)		11.9	– Are your collecting your revenues in a timely manner?
Average Days in Inventory		51.2	– Is the turnover too high or low?
Current Ratio			– Does your business have enough liquidity to cover your short term liabilities?
Quick ratio			– Does your business have enough cash to meet any short term liabilities that may be due soon?			1 mark		1
Debt to Equity Ratio			– Does the business use debt responsibly to enhance shareholder wealth or does it borrow excessively?
Financial	Comment on the results that you see above
Commentary	What actions should management prioritize? (5 marks)
Enter your comments after Horizontal analysis here:						1 mark		1
Enter your analysis of profitability ratios here:						1 mark		1
Enter your analysis of efficiency ratios here:						1 mark		1
Enter your analysis of liquidity ratios here:						1 mark		1
Enter your analysis of leverage ratios here:						1 mark		1
See “Hints” section in Instructions
						10	marks total	10

RUBRIC
Excellent Quality 95-100%	Introduction 45-41 points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.		Literature Support 91-84  points The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.			Methodology 58-53 points Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score 50-85%	40-38 points More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.		83-76  points Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.			52-49  points Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality 0-45%	37-1 points The background and/or significance are missing. No search history information is provided.		75-1 points Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.			48-1 points There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
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