Reference no: EM132515946

Question - One summer Saturday morning as David, an energetic and enterprising six year old, and his dad were eating breakfast, David noticed an ad in the newspaper for an electric motorcycle for L.L 100 which includes a second battery for free if purchased that week. David asked his dad if he can borrow L.L70 without interest for a month. His dad agreed.

David decided to generate the L.L 100, so with the money, David bought 20 packets of lemonade mix for L.L 2 per packet, 200 plastic cups for L.L 10, a poster board and magic marker to make a sign for L.L 5, a table and chair at a local garage sale for L.L10, and a small box in which to keep his money for L.L 5.

David's dad agreed to loan David a pitcher and mixing spoon for L.L 1 per day and to sell him water and ice from the kitchen for L.L 1 per pitcher. David negotiated terms of net 30 on these items, meaning that the rental cost of the pitched and the spoon, and the cost of water and ice had to be paid within 30 days from the time they are incurred.

David priced his lemonade at L.L 1.5 per glass. By the end of the day, he had sold 120 glasses of lemonade. Since each pitcher produced 10 glasses of lemonade, he used 12 packets of mix during the day. All sales were for cash, except for 2 glasses that he sold to his dad while he was cutting the grass and 4 glasses that he sold to his mom for that evening's dinner. Neither David's mom nor dad had cash with them when they bought the lemonade, so David agreed to sell them the lemonade on credit with credit terms of net 2 days.

After dinner, David and his dad sat down at the computer to create set of financial statements for the lemonade business. After seeing the initial numbers in the statements, David decided to liquidate the business by selling the rest of the inventory to his grandparents for a total L.L 10 and by selling all his fixed assets for L.L 23 to the next door neighbor.

Required - Critically evaluate the financial performance and condition of David's Lemonade Stand before liquidation, and determine whether David has reached his goal of generating a net of L.L 100, before and after liquidation.

Write the Income Statement for the First Day of Operations (Performance).

Write the Balance Sheet for the Day Ending the First Day of Operations (Fin. Condition).