Bizrate Electronics Inc. C Corporation 2023 Year End

Bizrate Electronics Inca C Corporationfor The Year Ended December

Cleaned assignment instructions: Analyze the provided financial statements and notes for Bizrate Electronics, Inc. for the year ended December 31, 2018. Prepare an extensive financial analysis including income statement review, balance sheet assessment, and detailed calculations of key items such as depreciation, gains/losses on stock sales, and tax considerations. Discuss the implications of the financial data on the company's financial health and performance, considering tax impacts, investment activities, and ownership structure. Offer insights into the company's profitability, liquidity, and overall financial position based on the given figures, incorporating relevant accounting principles and financial ratios.

Paper For Above instruction

Bizrate Electronics, Inc. presents an intriguing profile of a new retail electronics company established in early 2018, operating with a complex financial structure rooted in limited ownership, various investment activities, and significant expense and revenue streams. The analysis of its first-year financial statements reveals essential insights into its profitability, asset management, and financial health, critical for stakeholders such as investors, management, and potential creditors.

Introduction

Founded on March 1, 2018, Bizrate Electronics’s inaugural financial year encapsulates a period of startup operations, investment activities, and preliminary financial performance assessments. As a C corporation, the firm’s consolidated statements demonstrate key figures including sales, expenses, assets, liabilities, and equity positions, providing a foundation for deeper analysis of its operational efficiency, profitability, and financial stability (Gibson, 2019).

Income Statement Analysis

The income statement indicates total sales of $4,700,000, with gross profit at $2,300,000 after deducting the Cost of Goods Sold (COGS) derived from beginning and ending inventory calculations. The gross profit margin, calculated as gross profit divided by sales, stands approximately at 49%, suggesting a healthy markup typical within the electronics retail industry (Lamb et al., 2020). Expenses totaling approximately $1,511,600 encompass salaries, depreciation, advertising, bad debts, rent, insurance, taxes, and miscellaneous costs, culminating in a net income of $381,400.

Notably, salaries account for $980,000 — allocating $200,000 to Jon Jones and $50,000 to Billy Burt — indicating a substantial payroll relative to sales, consistent with employee compensation for owner-managers involved in operations. The depreciation expense of $75,400 reflects wear and tear on fixed assets, although tax depreciation for 2018 was higher at $112,700, influencing taxable income calculations (Kieso, Weygandt, & Warfield, 2019).

Asset and Liability Evaluation

The balance sheet reveals assets totaling $2,461,400, dominated by inventory ($1,700,000), cash ($113,000), and investments in securities ($17,000 in tax-exempt bonds). The fixed assets, net of depreciation, stand at approximately $165,400, indicating minimal long-term asset holdings relative to inventory and cash. The liabilities include accounts payable ($375,000) and short- and long-term notes payable totaling $1,375,000, reflecting significant leverage and borrowing to fund operations and assets (Brealey, Myers, & Allen, 2020).

Equity comprises $500,000 in capital stock and $141,400 in retained earnings, which increases from zero due to the company’s initial profits. The retained earnings statement confirms the company retained $141,400 after disbursing $240,000 in distributions, primarily to the owners.

Investment and Taxation Considerations

Sales of stock investments, such as 500 shares of SBUX stock for $35,000 with an original purchase price of $20,000, resulted in a realized gain of $4,800, impacting net income and taxable income. The sale of 100 shares of Grand View, Inc. for $2,000, compared with its purchase cost of $3,000, entails a recognized loss of $1,000, which could be used for tax purposes to offset gains (Brigham & Houston, 2019).

The sale of a delivery truck for $35,000, bought at $33,400 with prior depreciation, results in a slight gain, considering depreciation differences for book and tax purposes ($7,000 vs. $9,350). The gain or loss effect, combined with asset depreciation, influences taxable income and cash flow (Schroeder, Clark, & Cathey, 2019).

The company's tax considerations also encompass income from municipal bonds ($1,100), dividends ($5,800), and interest income ($11,500), each with different tax implications. Dividends from U.S. corporations not exceeding a 20% ownership threshold are typically taxable as income, whereas interest income varies depending on source and tax-exempt status (IRS, 2020).

Ownership, Stock Contributions, and Employee Benefits

Jon Jones and Billy Burt, the founders, contributed cash and stock, with Jon providing $270,000 including SBUX stock acquired prior to incorporation, and Billy providing $200,000 cash. Their ownership percentages held at 60% and 40%, respectively, affect profit sharing and dividend distributions. The life insurance premiums totaling $9,000 (including coverage for Jon and Billy and their families) are an important benefit, with the company acting as beneficiary, thus impacting financial statements under insurance expense and potential tax deductions (Armstrong & Taylor, 2019).

Financial Ratios and Performance Metrics

Assessing liquidity ratios, the current ratio at approximately 4.37 ($113,000/$70,000 current liabilities) indicates strong short-term liquidity. The debt-to-equity ratio, calculated as total liabilities ($1,755,000) over equity ($641,400), stands at about 2.74, signifying a leveraged position, which warrants cautious evaluation given industry standards (Higgins, 2018). Return on assets (ROA), measuring profitability relative to total assets, is approximately 15.5% ($381,400/$2,461,400), and return on equity (ROE) is roughly 59.4% ($381,400/$641,400), reflecting effective use of equity for profit generation (Pandey, 2016).

Conclusion

Bizrate Electronics, Inc.’s inaugural year demonstrates a profitable operation with substantial inventory holdings, manageable debt levels, and a diversified income profile through sales, investments, and interest income. Its liquidity appears robust, although leverage is notable, and profitable asset utilization indicates promising prospects. Key considerations for future growth include managing debt, optimizing inventory turnover, and strategic investment in assets to expand retail operations. The detailed financial analysis underscores the company's potential and highlights areas for prudent financial management to sustain profitability and growth (Gibson, 2019).

References

• Armstrong, M., & Taylor, S. (2019). Principles of management accounting. Kogan Page.
• Brealey, R., Myers, S., & Allen, F. (2020). Principles of corporate finance. McGraw-Hill Education.
• Gibson, C. H. (2019). Financial reporting and analysis. Cengage Learning.
• Higgins, R. C. (2018). Analysis for financial management. McGraw-Hill Education.
• Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting. Wiley.
• Lamb, C. W., Hair, J. F., & McDaniel, C. (2020). MKTG. Cengage Learning.
• Office of the IRS. (2020). Tax information for corporations. IRS.gov. https://www.irs.gov/businesses/corporations
• Pandey, I. M. (2016). Financial management. Vikas Publishing House.
• Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2019). Financial accounting theory and analysis. Wiley.
• Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2019). Financial accounting. Wiley.