Financial and

Management
Accounting By:
BITS Pilani Dr. Vaishali Pagaria
Vaishali.pagaria@wilp.bits-pilani.ac.in
Work Integrated Learning
Programmes Division
 BITS Pilani
Work Integrated Learning
Programmes Division

Module 1: Ribbon an’ Bows Inc.

Case Study
HW 1: Case Study: Ribbon an’
Bows, Inc.

11/27/2022 Dr. Vaishali Pagaria 3 BITS Pilani, WILPD

HW 1: Case Study: Ribbon an’
Bows, Inc.

11/27/2022 Dr. Vaishali Pagaria 4 BITS Pilani, WILPD

HW 1: Case Study: Ribbon an’
Bows, Inc.
Ribbon an’ Bows, Inc.
Assets and Capital Sources List, As on March 31, 2006
Assets Amount Liability Amount
(in $) (in $)

Cash 4000 Cousin’s Loan (Long-term 10000

Loan)
Inventory 3300 Carmen’s Equity 1000
Supplies 100
Prepaid rent 1200
Prepaid advertising 150
Computer & Software 2000
Cash Register Deposit 250
Total 11000 Total 11000

11/27/2022 Dr. Vaishali Pagaria 5 BITS Pilani, WILPD

Case Study: Ribbon an’ Bows,
Inc.
1. How would you report on the three-month operations of Ribbon an’
Bows, Inc., through June 30? Was the company profitable? (ignore
income-taxes).
2. Why did its cash in the bank decline during the three-month
operating period?
3. How would you report the financial condition of the business on
June 30, 2006?
4. Do you believe Carmen’s First three months of operation could be
characterized as “successful”? Explain your answer.

11/27/2022 Dr. Vaishali Pagaria 6 BITS Pilani, WILPD

Case Study: Ribbon an’ Bows,
Inc. – Solution
Ribbon an’ Bows, Inc.
Cash Statement for the Month End June 2006
Cash Receipts Cash Payments
   
   
Particulars Amount Amount Particulars Amount Amount
Loan   10000 Rent   3000
Equity   1000 Inventory   6200
Sales   7400 Cash Register Deosit   250
      Store Supplies   100
      Advertisement   150
      Computer   2000
    Sewing machine   1800
      salary   1510
      Cash   3390
Total   18400 Total   18400

11/27/2022 Dr. Vaishali Pagaria 7 BITS Pilani, WILPD

 Case Study: Ribbon an’ Bows,
Inc. – Solution
Ribbon an’ Bows, Inc.
Income Statement for the Month End June 2006
Particulars Amount ($)
sales 7720
(-) Cost of sales* 2100
Gross Income 5620
Employee Wages 1600
Rent 1800
supplies expenses 80
Pre-paid advertising expenses 150
EBDIT 1990
(-) Depreciation** 310
EBIT 1680
(-) Interest*** 200
Net Profit 1480

** Sewing machine purchased in May. So the asset's benefit was partly consumed during May and June resulting in a $60
depreciation charges (S1800/5years/12 months X 2months ---- Straight line depreciation)
* *Some of the future benefits of the computer and related software asset were consumed during the three months. So the
depreciation charges is $250 ($2000/2 years/12 months X 3 months) ---- Straight line depreciation method)
*** Four months interest on loan from cousin = $10000X0.06X4months/12months

11/27/2022 Dr. Vaishali Pagaria 8 BITS Pilani, WILPD

Case Study: Ribbon an’ Bows,
Inc. – Solution
Ribbon an’ Bows, Inc.
Balance Sheet as on 30th June 2006
Liabilities Assets
Particulars Amount ($) Particulars Amount ($)
Loan 10000 Bank 3390
Equity 1000 Prepaid Rent 1200
Unpaid salary 90 Cash Reg. Deposit 250
Upaid Interest 200 Computer (less dep.) 1750
Profit 1480 Debtors 320
Sewing Machine(Less
    dep.) 1740
    Stock in hand 4100
    Store supplies 20
       
Total 12770 Total 12770
11/27/2022 Dr. Vaishali Pagaria 9 BITS Pilani, WILPD
 Answers
1. How would you report on the three-month operations of Ribbon an’ Bows,
Inc., through June 30? Was the company profitable? (ignore income-taxes).

Based on the Income Statement presented in the analysis, we can conclude that
the company can be defined as profitable since it made $1480 in income
before taxes during the first three months of operation. we recommend
Carmen to continue increasing the sales in order to get more income and
receive salary.

2. Why did its cash in the bank decline during the three-month operating period?

Based on the Statement of Cash Flow, we can conclude that Carmen spent
more money in inventory than the cost of goods sold. So, we could recommend
Carmen a better management of her inventory in order to avoid unnecessary
expenses.

11/27/2022 Dr. Vaishali Pagaria 10 BITS Pilani, WILPD

Answers

3. How would you report the financial condition of the business

on June 30, 2006?
company’s balance sheet and Income statement

4. Do you believe Carmen’s First three months of operation

could be characterized as “successful”? Explain your answer

We conclude that Carmen’s first three months of operation

could be characterized as successful. However, in order to
pay back the loan and get salary, she would need to adjust
some of her inventory’s expenses and increase the sales.

11/27/2022 Dr. Vaishali Pagaria 11 BITS Pilani, WILPD

 BITS Pilani
Work Integrated Learning
Programmes Division

Thank you.

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