Dispensers of California

The impact of different transactions Peter needs to consider is as follows:

ASSETS

S.No Description of transaction Cash Patent

1 Patent as Peter Hynes's Equity 120000
Hynes's Friend's Equity 80000
Balance 80000 120000
2 Incorporation Expenses -2500
Balance 77500 120000
3 Purchase of Equipment -85000
Balance -7500 120000
4 Labor and Development Expenses -25000
Balance -32500 120000
5 Purchase of Component Parts -212100
Balance -244600 120000
6 Short Tem Loan from Bank 30000
Repayment of loan -30000
Interest Expense -500
Balance -245100 120000
7 Manufacturing and Payroll Expense -145000
Balance -390100 120000
8 Other manufacturing Expenses -62000
Balance -452100 120000
9 Selling, general and admin expenses -63000
Balance -515100 120000
10 Component parts expense
Balance -515100 120000
11 Sales Revenue 598500
Balance 83400 120000
13 Depreciation on Equipment
Balance 83400 120000
14 Amortization of Patent -20000
Balance 83400 100000
16 Dividend -5000
Balance 78400 100000
17 Income Tax Expense
Total 78400 100000

Assumptions:
1. All the transaction have taken place in chronological order.
2. Negative cash has been ignored.
Dispensers of California, Inc.

ASSETS LIABILITIES + OWNER'S EQUITY

Component Loans Owner's Revenue/
Parts Equipment Total Payable Tax Payable Equity (expenses)
120000
80000
0 0 200000 0 0 200000 0
-2500
0 0 197500 0 0 200000 -2500
85000
0 85000 197500 0 0 200000 -2500
-25000
0 85000 172500 0 0 200000 -27500
212100
212100 85000 172500 0 0 200000 -27500
30000
-30000
-500
212100 85000 172000 0 0 200000 -28000
-145000
212100 85000 27000 0 0 200000 -173000
-62000
212100 85000 -35000 0 0 200000 -235000
-63000
212100 85000 -98000 0 0 200000 -298000
-197000 -197000
15100 85000 -295000 0 0 200000 -495000
598500
15100 85000 303500 0 0 200000 103500
-8500 -8500
15100 76500 295000 0 0 200000 95000
-20000
15100 76500 275000 0 0 200000 75000
-5000
15100 76500 270000 0 0 200000 70000
22500 -22500
15100 76500 270000 0 22500 200000 47500
 (Amount in $)
UITY

Total

200000

197500

197500

172500

172500

172000

27000

-35000

-98000

-295000

303500

295000

275000

270000

270000
 Dispensers of California, Inc.
Trial Balance
As of End of First Year of Operations
(Amount in $)
Account Debit Credit
Patent as Peter Hynes's Equity 120000
Hynes's Friend's Equity 80000
Incorporation Expenses 2500
Equipment Less Depreciation 76500
Labor and Development Expenses 25000
Component Parts 15100
Interest Expense 500
Manufacturing and Payroll Expense 145000
Other manufacturing Expenses 62000
Selling, general and admin expenses 63000
Component parts expense 197000
Sales Revenue 598500
Patent Less Amortization 100000
Dividend 5000
Tax Payable 22500
Depreciation on equipment expense 8500
Amortization on Patent expense 20000
Cash 78400
Income Tax Expense 22500
Total 821000 821000
 Dispensers of California, Inc.
Income Statement
For the Projected Period of One Year

(Amount in $)
Particulars Amount
Net Sales 598500
Cost of Sales
Component Parts expense 197000
Manufacturing and Payroll Expense 145000
Other manufacturing Expenses 62000
Equipment Depreciation Expense 8500
Gross Margin 186000
Research and development expense 25000
Selling, general and admin expenses 63000
Incorporation Expenses 2500
Patent Amortization 20000
Operating Income 75500
Interest expense 500
Income before Income Taxes 75000
Provision for Income Taxes 22500
Net Income 52500
 Dispensers of California, Inc.
Statement of Retained Earnings

(Amount in $)
Particulars Amount
Retained Earnings at the beginning of t 0
Add: Net Income 52500
Less: Dividends 5000
Retained Earnings at the end of the yea 47500
 Dispensers of California, Inc.
Ending Balance Sheet
As of the End of First Year of Operations

ASSETS LIABILITIES AND OWNER'S EQUITY

Current Assets Current Liabilities
Cash 78400 Loans Payable
Component Parts 15100 Taxes Payable
Total Current Assets 93500 Total Current Liabilities

Property, Plant and Equipment Shareholder's Equity

Equipment 85000 Peter Hynes's Equity
Less: Depreciation 8500 Peter Hynes's Friend's Equity
Net Property, Plant and Equipment 76500 Retained Earnings
Total Shareholder's Equity
Non- Current Assets
Patent 120000
Less: Amortization 20000 100000
Total Assets 270000 Total Liabilities and Owner's Equity
 (Amount in $)
AND OWNER'S EQUITY

0
22500
22500

120000
80000
47500
247500

270000
Conclusion

Return on Equity 26.25%

Return on Sales 8.77%
Current Ratio 4.16

Remarks
Although the current ratio is very high as compared to ideal ratio of 1.33, return on
equity and return on sales are satisfactory. Therefore, money could be invested in
such company.