Frosty and his family visit the local farmers’ market on their weekly shopping trip. Deborah, a local craft-producer and friend of Frosty’s family, is selling her holiday ‘wreaths’ at the market. Frosty tells Deborah how much he likes her wreaths.
Deborah knows that Frosty is a budding entrepreneur and asks if he will try selling the wreaths at the Holiday Food & Gift Festival on December 3rd, 4th, & 5th. Deborah says that she will be out of town most of that weekend and wants Frosty to sell the product to keep building awareness of the wreaths. She also says that she has a booth reservation and he would have to pay the Holiday Food & Gift Festival show management a $285 booth fee on December 3rd along with a refundable $30 clean-up fee. Deborah gives the following information:
• Wreaths have been selling for a market price of $15.00 each
• Frosty can buy wreaths from her for $7.00 each
• Wreath inventory is enough to cover the needs of Holiday Food & Gift Festival celebration
• Frosty can rent Deborah’s booth furniture (tables and chairs) for a total of $90 for the 3 days, to be paid at the end of the weekend.
• Frosty can keep any of the net income from the festival
• She will return on the afternoon of December 5th and expects to be paid for inventory acquired from her storage unit and the furniture rent!
Frosty agrees to Deborah’s offer and decides to sell wreaths at the Holiday Food & Gift Festival. Frosty asks his sister, Ginger, to help in the booth and he would pay her $25 a day. Ginger agrees.
Friday, December 3rd:
Early in the morning, Frosty takes $500 out of his secret stash of personal savings to finance the weekend. He then picks up 100 wreaths from Deborah’s storage unit. Frosty sets up the stand and pays the show manager, Kavinda, $315 in cash.
At 2:30 in the afternoon, Rudolf with his nose so bright, prepays $225 to buy 15 wreaths that Frosty will have ready for pick-up on Sunday morning.
Walk-up sales are good and they sell 80 wreaths in this manner by end of the day.
Ginger, who worked hard, mentions that her wage of $25 per day is too low. Frosty and Ginger agree that $75 a day is fair and that she will be paid at the end of the fair.
Saturday, December 4th:
Before the show opens, Frosty retrieves 200 wreaths from the storage unit because Saturday is believed to be the big sales day.
The ‘Young Professionals’ club asks Frosty if they could buy 30 wreaths and pay him tomorrow, Frosty agrees.
Saturday turns out to be a typical winter day and everyone is inside to stay warm. Next to Frosty’s booth is the ‘Corvallis Goat Cheese Gifts & More’ booth which is proudly displaying their Nubian goats. Ginger related the following facts to Frosty, who was at the food court having an iced-mocha and lunch during the disastrous events. “At 2:30 pm, Grinchy, the eldest Nubian goat, escaped her pen and voraciously chomped on 15 wreaths until they were ruined.” When questioned later by Frosty, Professor Hinkle, president of the Corvallis Goat Cheese Gifts & More, LLC claimed that Grinchy cannot be held responsible because she was hungry and wreaths make a great lunch. Professor Hinkle also said ‘take me to court because you aren’t getting anything from me.’
Walk-up sales amounted to 147 units sold for the day.
Sunday, December 5th:
Before the show opens, Frosty retrieves 150 wreaths from the storage unit.
Rudolf picks up the wreaths that he paid for on Friday and the Young Professionals pay Frosty the amount they owe.
Walk-up sales amounted to 160 units sold for the day. Kavinda comes by and returns the $30 cleaning fee.
Ginger mentions that sales today were double Friday’s sales and she wants a bonus, after haggling with her brother, they agree to a $75 bonus-payment. Frosty pays Ginger all amounts owed.
Deborah stops by and is amazed by the amount of sales made. Frosty pays Deborah for the furniture rent and for the inventory retrieved less what she takes back with her.
Frosty recovers his original cash injection by withdrawing $500.
Required:
Prepare, in good form, a classified balance sheet and an income statement at the end of each day (December 3rd, 4th & 5th) using accrual accounting. Treat each day as a separate accounting period. Assume all transactions are material. (Make sure you understand the difference between current and long-term in regard to assets and liabilities when developing these statements.)
The financial statements must be computer generated using Excel or Word. Attach supporting calculations (such as spreadsheets, t-accounts, journal entries).
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