Spencer Christensen
Accounting 260
Professor McNellis
September 1, 2021
Case Study #1
Company Expenditures:
-$180,000 paid in interest
-$700,000 for furniture and vehicles
-$720,000 for lease of warehouse
-$900,000 other operating costs
-$950,000 in company payroll and benefits
-$5,500,000 in payment to manufacturers
Company Income
-$5,600,000 from sold goods
In total, I think the company lost $3,350,000. I added up all the expenses that were exact as of
year-end (adding them together as negative), and then added (as positive) all the money they had
made that year to get this total amount lost. However, I don’t necessarily think that this is a bad
business model because of the money the company can be guaranteed to expect, but hadn’t YET
RECEIVED at years-end.
Here’s what I mean by that. While they can also expect to pay another $60,000 for interest for
that one year, and of course, for future interest until they pay off the loan, they are also expecting
another $1,800,000 in gift card redemptions and $1,400,000 in expected amounts to be collected
from customers for sold goods. That nearly makes up for the $3,350,000 that they’ve lost. Of
course, they will also have to pay their employees another $350,000, so that is also a loss, but
that only puts them back a total of about $500,000, which for a first year company is not super
bad and they can expect and hope to make that back soon.
There was one thing I was confused about. It said that each of the owners invested about
$250,000 of their own money into the company. I don’t know whether I should count that as a
loss or not, but if so that means they are down about $1,250,000. While that is a larger number, if
they continue with their methods they could also make that back and starting making a profit in
the next few years.