answered: Read Highland Malt: Accounting Policy Choices in Financial S

  

Read Highland Malt: Accounting Policy Choices in Financial Statements. Prepare balance
sheets, income statements, and cash flow statements for the Years 2018 and 2019 only,
and then briefly discuss Highland Malt’s financial health and make recommendations for
improvements. Note that the main component of this case study is the successful
creation of the three financial statements (Balance Sheet, Income Statement, and Cash
Flows Statement).
? This task will require you to make certain assumptions about the firm’s business
operations, and to prepare all required journal entries and T-accounts (you do not
need to submit journal entries and T-accounts).
? The discussion section should be no more than one, single-spaced page, and
should be limited to:
? Key assumptions you made
? Financial ratio analyses you performed
? Recommendations you are making to improve the financial health of the
company.
? You are required to show your calculations for the following: Cash, Inventory,
Retained Earnings, Sales Revenues, COGS, and Operating Expenses. Additionally,
you are required to show how you calculated the financial ratios. You may show
your calculations in a separate part at the end of your project. This proof is not to
be counted as part of the one page discussion requirement.
Assumptions
When preparing the financial statements, add the following assumptions to your own:
1. Revenue recognition. Treat sales of whisky as revenue (not deferred revenue nor
any other liability).
2. Inventory/production costing methods. Inventory production began in 2018, but
no sales took place in 2018. Use the first-in, first out method (FIFO) when
calculating the Cost of Goods Sold (COGS). Do not include any of the expenses in
Exhibit 4 in COGS.
3. Income taxes. On the income statement, ignore taxes. Reflect the bank loan
interest for 2018 and 2019. Present EBI (Earnings Before Interest). Then, present
net income or net loss.
4. Expense categories. Include all costs listed in Exhibit 4 as fixed costs and as
operating expenses that fall under Selling, General and Administrative expenses
(SG&A).
5. Bank Loan. Assume the loan was obtained on Jan. 1, 2018 and since the case
states it “was extended in 2019,” assume the full amount of the principal will be
repaid on January 1, 2020.