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It is the usual accountant’s story…a friend of yours (John Doe) has purchased
It is the usual accountant’s story...a friend of yours (John Doe) has purchased a small business and knows that you are proficient at analyzing financial information. He has asked you to help him with his financial analysis. He informs you of the following background information. After 20 years of service at his prior job, John was burned out and considering a change. While Christmas shopping, he was talking with a retail owner at a local mall and was informed that most retail stores mark up their prices 200%. John decided to quit his job and purchase and operate a retail toys and hobby shop. So, after finding the right opportunity, in January of year 1, he purchased a small store and inventory of toys / games for $300,000. He financed the purchase through the local bank, which loaned him 80% of the money at 7% for 10 years and required John to personally finance the other 20%. Since he is the owner of a small business, he has been operating it as a sole proprietor and not issued any stock. He is not paid a salary, but draws money out as needed. He has a full-time bookkeeper who handles all his books and accounting functions. There are two full-time sales clerks that work in the store and stock inventory in storage or on the shelves as it is delivered. All three of these employees have worked for him since he opened his business. John started each of them out at about $25,000 per year and has given each of them raises every year (approximately 3% per year). Additionally, if the company has a good year (net income), he rewards the employees by paying each of them a bonus of 3% of the net income amount. The bonuses are paid in the following year (February). For years 1 and 2, he had some external accountants prepare a compilation report. For years 3, 4, and 5, he had a different set of external accountants prepare the compilation reports. The compilation reports state that the books are kept on an accrual basis of accounting according to GAAP and that Property Equipment is capitalized at cost and depreciated using the straight-line method over the useful life of the property (Equipment 3 years, Furniture 5 years and Building 15 years). Required: In Excel, use the information provided from the accountants (page 6-34) to create a vertical, horizontal, and ratio analysis. Summarize what each analysis reveals. Use the analysis to form a recommendation on which financial accounts John should reevaluate. Your well-written paper must be 3-4 pages, in addition to title and reference pages. Your paper should be 4-6 pages in length with document and citation formatting per CSU Global Writing Center (Links to an external site.)guidelines. Include your Excel sheet(s) as an appendix to your paper. Cite at least two-peer-reviewed sources, in addition to the required reading for the module.

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