Chapter 6 managing cash flow kaj grew up in

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Chapter 22 / Exercise CP22-5
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Chapter 6: Managing Cash FlowKaj grew up in Copenhagen, Denmark and received a college degree from a technical university in Sweden. As is typically in Europe, Kaj began his business career as an apprentice at a major home furnishings manufacturer in Copenhagen. After “learning the trade,” he quickly moved into a management position in the firm. However, after a few years, Kaj realized that what he really wanted to do was to start and operate his own Scandinavian home furnishings business. At the same time, after traveling throughout the world including the U.S., he was sure that he wanted to be an entrepreneur in the United States. Thus, while it was hard to give up the Tivoli Gardens with its many entertainment and dining activities, as well as the other attractions in Copenhagen, Kaj moved to the U.S. in early 2013. With $140,000 of his personal assets, and $210,000 from venture investors, he began operations in mid-2013. Kaj, with a 40 percent ownership interest and industry-related management expertise, was allowed to operate the venture in a way that he thought was best for Scandi. Four years later, Kaj is sure he did the right thing.Following are the three years of income statements and balance sheets for the Scandi Home Furnishings Corporation. Kaj has felt that in order to maintain a competitive advantage that he would need to continue to expand sales. After first concentrating on selling Scandinavianhome furnishings in the northeast in 2014 and 2015, he decided to enter the west coast market. An increase in expenses associated with identifying, contacting, and selling to home furnishings retailers in California, Oregon, and Washington. Kaj Rasmussen was hoping that you could help him better understand what has been happening to Scandi Home Furnishings both from operatingand financial standpoints.SCANDI HOME FURNISHINGS, INC. Income Statements201420152016Net Sales$1,300,000 $1,500,000 $1,800,000Cost of Goods Sold 780,000900,0001,260,000Gross Profit 520,000 600,000540,000Marketing 130,000 150,000 200,000General & Administrative 150,000 150,000200,000Depreciation 40,00053,00060,000EBIT 200,000 247,00080,000Interest 45,00057,00070,000Earnings Before Taxes 155,000 190,00010,000Income Taxes (40%)62,00076,0004,000Net Income $93,000 $114,000$6,000Cash Dividends$0$74,000$0SCANDI HOME FURNISHINGS, INC. Balance Sheets 201420152016Cash $50,000$40,000$10,000Accounts Receivables 200,000 260,000 360,000Inventories 450,000500,000600,000Total Current Assets 700,000 800,000 970,000117
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Chapter 22 / Exercise CP22-5
Accounting
Reeve/Warren
Expert Verified
Chapter 6: Managing Cash FlowFixed Assets, Net 300,000400,000500,000Total Assets $1,000,000 $1,200,000 $1,470,000Accounts Payable$130,000 $170,000 $180,000 Accruals 50,000 70,00080,000Bank Loan 90,00090,000184,000Total Current Liabilities 270,000 330,000444,000Long-Term Debt 300,000 400,000550,000Common Stock ($10 par)* 300,000 300,000300,000Capital Surplus 50,000 50,00050,000Retained Earnings 80,000120,000126,000Total Liab. & Equity $1,000,000 $1,200,000 $1,470,000Note: 30,000 shares of common stock were issued to Kaj Rasmussen and the venture investors when Scandi Home Furnishings was incorporated in mid-2013.A.An analysis of the cash conversion cycle should also help Kaj understand what has been happening to the operations of Scandi. Prepare an analysis of the average conversion periods for the three components of the cash conversion cycle for 2014-2015 and 2015-2016. Explain was has happened in terms of each component of the cycle.

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