Smith and Jones start a business to build custom bicycles.Smith invests personal funds of $80,000 and Jones invests $70,000.Grandma Smith loans the company $12,000 with the provision it is tobe paid back in 12 equal monthly payments plus 1.5% monthlyinterest. Smith and Jones agreed that ownership would beproportional to their equity investments. In addition, they borrow$38,000 from the bank at interest of 1.5% per month payablemonthly. (They do not have to pay back the principal for fiveyears, so ignore it.) They buy $90,000 worth of parts. They use$60,000 of those parts in the first month. They pay factory workersa total of $10,000 for the first month. They pay rent of $3,000 forthe month for a factory. They each (not Grandma) draw salaries of$4,000 per month. They sell the resulting bicycles for$120,000.
a. Prepare a balance sheet for day zero, that is, store isready, people hired, parts on hand, money collected from bank,Grandma, Smith, and Jones.
b. Prepare an income statement for the first month.
c. Prepare a balance sheet for the last day of the firstmonth.
d. What is the percent ownership by Smith, Jones, and Grandmaon the first day of the month.
e. How much equity is owned by each on last day of the firstmonth.
Hints: The interest calculations can be done in your head. Iam not looking at some kind of sophisticated loan amortizationcalculations. That means grandma gets 1/12 of her money back eachmonth and also gets her interest calculated on the initialamount.
