MBA 708 Essentials of Financial Statement Analysis
Week 6 Case Study: Transaction and Financial Analysis
Tallulah Company has been in business for several years and is publicly traded on a major U.S. stock exchange.
It is a wholesaler of a variety of high-end pet supplies. The balance sheet and income statement for the year
ended December 31, Year 3, appeared as follows (all amounts are in thousands of dollars):
Tallulah Company
Balance Sheet
December 31, Year 3
Assets: Liabilities and Stockholders’ Equity:
Cash $4,240
Wages payable $640
Accounts receivable 6,800 Total Cu
ent Liabilities 640
Inventory 15,200
Total Cu
ent Assets 26,240 Total Liabilities 640
Land for Plant Expansion 9,000 Stockholders' Equity
Buildings &
equipment 16,780
Capital stock 33,000
Accumulated
Depreciation
(4,780) 12,000
Retained earnings 13,600
Total Stockholders' Equity 46,600
Total assets
$47,240
Total liabilities and
stockholders’ equity $47,240
Tallulah Company
Income Statement
FYE December 31, Year 3
Revenues:
Sales $ XXXXXXXXXX,000
Expenses:
Cost of goods sold $ 136,800
Wages and salaries 11,000
Rent XXXXXXXXXX,600
Advertising XXXXXXXXXX,500
Depreciation XXXXXXXXXX,500
Total expenses 162,400
Net income $ XXXXXXXXXX,600
During the first quarter of the Year 4 (January, Fe
uary, March), the following events occu
ed:
A. $500 cash was paid for a new trademark for the company. It was determined that this amount should be
capitalized rather than expensed. Since the trademark has an indefinite useful life, no amortization will
e recorded.
B. Wages and salaries totaling $3,200 were paid in cash during the first quarter of Year 4. A portion of this
amount paid off the wages that were payable at the end of the previous year. The remaining amount was
for wages paid in the first quarter of Year 4.
C. All accounts receivable outstanding on December 31, Year 3 were collected in the first quarter of year 4.
D. Tallulah Company’s advertising agency billed the firm $1,000 for a campaign that ran during the first
quarter of Year 4. Tallulah Company had not paid the bill as of March 31, Year 4
E. Sales totaling $18,000 were made to customers during the first quarter of Year 4. Of these sales, 60%
were collected during the first quarter and the balance is expected to be collected during the next quarter.
F. The inventory related to the sales in part E above cost the company $13,000 when they were purchased.
G. Dividends were declared and paid to stockholders in the amount of $1,500.
H. Inventory costing $10,600 was purchased during the first quarter of Year 4, of which 10% was paid in
cash before the end of the first quarter. The remaining 90% was still payable to the vendors at the end of
the first quarter.
I. A 3-year, $4,000 12% loan was obtained from a local bank on the last day of the quarter. The full
amount of interest and principal is due at the end of the 3-year period.
J. New shares of stock were issued by Tallulah Company during the first quarter for $2,000 in cash
K. A new 3-year lease agreement was signed and executed on January 1, Year 4 for the first 6 months of
Year 4. The lease required that a $900 monthly rental be paid in advance for the first 2 quarters of the
year (total paid is $5,400 = $900 x 6 months)
L. The land that had been held for plant expansion was sold for $9,000.
There is no need to adjust the books for depreciation or items I and K above
Required: (Use the Excel Worksheet provided for all Calculations on the tab indicated)
1. Complete the transaction analysis template for the first quarter of Year 4. If you need to come up with a
new account, do your best to use a reasonable account title. Extra columns have been added to the
transaction template for this purpose. Be advised that you might not use all the columns provided.
2. Prepare a balance sheet in good form at March 31, Year 4.
3. Prepare an income statement in good form for the quarter ended March 31, Year 4.
4. Using the template provided, prepare a Statement of Cash Flows quarter ended March 31, Year 4.
5. Evaluate the company’s performance for the first quarter of Year 4. Use no more than five trends,
atios, or other measurements you believe are most important in gaining an overall picture.
o Within the analysis, provide a defense for the five trends, ratios, or other measurements you
selected.
o Use 500 words or less for this write-up. Clarity and conciseness (along with co
ect spelling and
grammar) are valued in business.