Express Dining, Inc. (EDI) is a food delivery service which connects consumers with several restaurants. Customers call EDI and place an order, which EDI then picks up from the restaurant and delivers directly to the customer's home or business. EDI collects the charge for the food (which they then turn over to the restaurant) as well as a delivery fee.
EDI was established in November by its owner, Carol Freeman. Below are all of the events which occurred during EDI's first month of operation.
1. 11/01: Carol invests $50,000 cash and a computer (worth $1,200) to start the business. The computer has a useful life of two years.
2. 11/02: EDI places an order for a delivery van, which will cost $20,000, plus taxes and registration of an additional $1,000. The car dealership which is selling the van carried it at a book value of $18,000. EDI expects to use the van for the next five years.
3. 11/03: EDI rents a small office for $1,000 per month, and pays for the entire first year up front, in cash.
4. 11/04: EDI pays the car dealership a $7,000 down payment on the delivery van.
5. 11/05: Carol picks up the delivery van, and signs a note (on EDI's behalf) for the remaining $14,000. The note is due in one year, plus 6% simple interest. EDI will make one payment, of $14,840, on November 4 of next year.
6. 11/06: EDI hires a driver, and contractually guarantees that he will be paid $3,000 on December 1, even if the he ends up not putting in any hours (say, if the business fails to take off). Thereafter, he will be paid on an hourly basis.
7. 11/10: EDI pays $6,000 for an advertising campaign which is run immediately.
8. 11/30: During the month, EDI earns delivery fees of $5,000, all of which are paid in cash.
9. 11/30: Seeing how well the firm is doing, Carol decides to withdraw $1,000 in capital from the firm. Treat this as a dividend, rather than as a repurchase of stock.
10. 11/30: On the last day of the month, EDI is informed that another firm is suing them for trademark infringement. The other firm is claiming $100,000 in damages. (see next page for requirements)EMBA 606 - Financial Accounting
A. For each of the transactions on the previous page, record the effect on EDI's financial statements, using the financial statement effects template (see pages 48-50 of the Dyckman, Magee, and Pfeiffer textbook). This is the format that we will use throughout the course.
B. Prepare a balance sheet for EDI as of November 30.
C. Prepare an income statement for EDI for the month ended November 30.