Microsoft Word peachtree case study

Page 68 of 141
Table 11 Normalized Balance Sheets (2002‐2006)





This section continues on the following page.
Summary of Balance Sheets
Normalized
Adjustment
Note
Adjustment
Note
ASSETS
Current Assets
Cash
1,403,000
$
21.7%
1,403,000
$
42.9%
1,435,000
$
27.8%
1,435,000
$ Accounts Receivable
13.8%
891,000
$
27.2%
714,000
$
13.8%
714,000
$ Inventory
0.8%
4,650
$
1 53,650
$
1.6%
45,000
$
0.9%
3,019
$
1 48,019
$ Short Term Investments
33.2%
(2,150,000)
$
2
‐
$
0.0%
1,220,000
$
23.7%
(1,220,000)
$
2
‐
$
0.0%
TOTAL CURRENT ASSETS
4,493,000
$
69.5%
2,347,650
$
71.7%
3,414,000
$
66.2%
2,197,019
$
76.0%
FIXED ASSETS
Property, Plant, & Equipment
13.9%
900,000
$
27.5%
675,000
$
13.1%
675,000
$ Land
13.9%
(900,000)
$
3
‐
$
0.0%
900,000
$
17.5%
(900,000)
$
3
‐
$ Other Fixed Assets
0.4%
25,000
$
0.8%
18,000
$
0.3%
18,000
$
0.6%
TOTAL FIXED ASSETS
1,825,000
$
28.2%
925,000
$
28.3%
1,593,000
$
30.9%
693,000
$
24.0%
OTHER ASSETS
Deposits
150,000
$
2.3%
(150,000)
$
4
‐
$
150,000
$
2.9%
(150,000)
$
4
‐
$
0.0%
TOTAL ASSETS
6,468,000
$
100.0%
(3,195,350)
$
3,272,650
$
100.0%
5,157,000
$
100.0%
(2,266,981)
$
2,890,019
$
100.0%
CURRENT LIABILITIES
Notes Payable (Short‐term)
135,000
$
2.1%
135,000
$
4.1%
119,000
$
2.3%
119,000
$ Accounts Payable
0.2%
10,000
$
0.3%
12,000
$
0.2%
12,000
$ Other Current Liabilities
0.0%
3,000
$
0.1%
4,000
$
0.1%
4,000
$
0.1%
TOTAL CURRENT LIABILITES
148,000
$
2.3%
148,000
$
4.5%
135,000
$
2.6%
135,000
$
4.7%
LONG TERM DEBT
Notes Payable
1,831,000
$
28.3%
1,831,000
$
55.9%
1,517,000
$
29.4%
1,517,000
$
52.5%
TOTAL LIABILITIES
1,831,000
$
28.3%
1,831,000
$
55.9%
1,517,000
$
29.4%
1,517,000
$ Common Stock
0.9%
55,000
$
1.7%
55,000
$
1.1%
55,000
$ Paid In Capital
465,000
$
7.2%
465,000
$
14.2%
465,000
$
9.0%
465,000
$ Retained Earnings
61.4%
(3,195,350)
$
1,2,3,4 773,650
$
23.6%
2,985,000
$
57.9%
(2,266,981)
$
1,2,3,4 718,019
$
24.8%
TOTAL EQUITY
4,489,000
$
69.4%
(3,195,350)
$
1,293,650
$
39.5%
3,505,000
$
68.0%
(2,266,981)
$
1,238,019
$
42.8%
TOTAL LIABILITIES & EQUITY
6,468,000
$
100.0%
(3,195,350)
$
3,272,650
$
100.0%
5,157,000
$
100.0%
(2,266,981)
$
2,890,019
$
100.0%
6/30/2006
6/30/2005
Actual
Normalized
Actual
Normalized

Page 69 of 141






This section continues on the following page.
Summary of Balance Sheets
Normalized
Adjustment
Note
Adjustment
Note
ASSETS
Current Assets
Cash
1,005,000
$
26.0%
1,005,000
$
43.7%
350,000
$
12.8%
350,000
$ Accounts Receivable
17.8%
689,000
$
30.0%
750,000
$
27.4%
750,000
$ Inventory
1.0%
3,587
$
1 42,587
$
1.9%
30,000
$
1.1%
754
$
1 30,754
$ Short Term Investments
13.3%
(514,000)
$
2
‐
$
0.0%
65,000
$
2.4%
(65,000)
$
2
‐
$
0.0%
TOTAL CURRENT ASSETS
2,247,000
$
58.2%
1,736,587
$
75.5%
1,195,000
$
43.7%
1,130,754
$
69.8%
FIXED ASSETS
Property, Plant, & Equipment
14.2%
550,000
$
23.9%
475,000
$
17.4%
475,000
$ Land
23.3%
(900,000)
$
3
‐
$
0.0%
900,000
$
32.9%
(900,000)
$
3
‐
$ Other Fixed Assets
0.3%
13,000
$
0.6%
15,000
$
0.5%
15,000
$
0.9%
TOTAL FIXED ASSETS
1,463,000
$
37.9%
563,000
$
24.5%
1,390,000
$
50.8%
490,000
$
30.2%
OTHER ASSETS
Deposits
150,000
$
3.9%
(150,000)
$
4
‐
$
0.0%
150,000
$
5.5%
(150,000)
$
4
‐
$
0.00%
TOTAL ASSETS
3,860,000
$
100.0%
(1,560,413)
$
2,299,587
$
100.0%
2,735,000
$
100.0%
(1,114,246)
$
1,620,754
$
100.0%
CURRENT LIABILITIES
Notes Payable (Short‐term)
111,000
$
2.9%
111,000
$
4.8%
88,000
$
3.2%
88,000
$ Accounts Payable
0.4%
15,000
$
0.7%
13,000
$
0.5%
13,000
$ Other Current Liabilities
0.1%
2,000
$
0.1%
5,000
$
0.2%
5,000
$
0.3%
TOTAL CURRENT LIABILITES
128,000
$
3.3%
128,000
$
5.6%
106,000
$
3.9%
106,000
$
6.5%
LONG TERM DEBT
Notes Payable
1,158,000
$
30.0%
1,158,000
$
50.4%
830,000
$
30.3%
830,000
$
51.2%
TOTAL LIABILITIES
1,158,000
$
30.0%
1,158,000
$
50.4%
830,000
$
30.3%
830,000
$ Common Stock
1.4%
55,000
$
2.4%
55,000
$
2.0%
55,000
$ Paid In Capital
465,000
$
12.0%
465,000
$
20.2%
465,000
$
17.0%
465,000
$ Retained Earnings
53.2%
(1,560,413)
$
1,2,3,4 493,587
$
21.5%
1,236,000
$
45.2%
(1,114,246)
$
1,2,3,4 121,754
$ Dividends
‐
$
0.0%
43,000
$
1.6%
43,000
$
2.7%
TOTAL EQUITY
2,574,000
$
66.7%
(1,560,413)
$
1,013,587
$
44.1%
1,799,000
$
64.2%
(1,114,246)
$
684,754
$
42.2%
TOTAL LIABILITIES & EQUITY
3,860,000
$
100.0%
(1,560,413)
$
2,299,587
$
100.0%
2,735,000
$
98.4%
(1,114,246)
$
1,620,754
$
100.0%
6/30/2003
Actual
Normalized
6/30/2004
Actual
Normalized

Page 70 of 141

As a result of the valuator’s review of the Company’s historical Income statements, the following Income Statement normalization adjustments were made and are summarized in the table below





Summary of Balance Sheets
Normalized
Adjustment
Note
ASSETS
Current Assets
Cash
209,000
$
10.0%
209,000
$ Accounts Receivable
13.9%
290,000
$ Inventory
1.2%
1,115
$
1 26,115
$ Short Term Investments
2.4%
(50,000)
$
2
‐
$
0.0%
TOTAL CURRENT ASSETS
574,000
$
27.5%
525,115
$
53.2%
FIXED ASSETS
Property, Plant, & Equipment
21.6%
450,000
$ Land
43.1%
(900,000)
$
3
‐
$ Other Fixed Assets
0.6%
12,000
$
1.2%
TOTAL FIXED ASSETS
1,362,000
$
65.3%
462,000
$
46.8%
OTHER ASSETS
Deposits
150,000
$
7.2%
(150,000)
$
4
‐
$
0.0%
TOTAL ASSETS
2,086,000
$
100.0%
(1,098,885)
$
987,115
$
CURRENT LIABILITIES
Notes Payable (Short‐term)
73,000
$
3.5%
73,000
$ Accounts Payable
0.5%
11,000
$ Other Current Liabilities
0.1%
3,000
$
0.3%
TOTAL CURRENT LIABILITES
87,000
$
4.2%
87,000
$
8.8%
LONG TERM DEBT
Notes Payable
705,000
$
33.8%
705,000
$
71.4%
TOTAL LIABILITIES
705,000
$
33.8%
705,000
$ Common Stock
2.6%
55,000
$ Paid In Capital
465,000
$
22.3%
465,000
$ Retained Earnings
37.1%
(1,098,885)
$
1,2,3,4
(324,885)
$
‐32.9%
TOTAL EQUITY
1,294,000
$
62.0%
(1,098,885)
$
195,115
$
19.8%
TOTAL LIABILITIES & EQUITY
2,086,000
$
100.0%
(1,098,885)
$
987,115
$
100.0%
6/30/2002
Actual
Normalized

Page 71 of 141
Table 12 Income Statement Normalization Adjustments

Note
Item
Basis
Non‐Controlling
Interest Affect
Description & Discussion
1
Owner's Compensation
Discretionary
NO
Mike and Shirley Jones' salaries are above the market for the job they perform. According to Atlanta‐based Personnel Consultants, reasonable annual market compensation for Mike Jones is $100,000 and for Shirley Jones is $58,000. The line item for 2006 is reduced by
$82,000 ($240,000 annual compensation for Mr. & Mrs. Jones for 2006 vs. $158,000 fair market value for 2006). Related adjustments for 2002‐2005 are based on newly adjusted 2006 figures and then deflated/inflated from there based on the Consumer Price Index (CPI. The CPI. figures are the US. Bureau of Labor Statistics. See table below for the annnual impact of adjustments.
2
Rent
Discretionary
NO
The company is currently paying the Jones Family Limited Partnership $5,500 per month for their facility. A rent survey by Atlanta‐based Commercial Realty Company concluded that the fair market value lease for the company's facility is $6,000 per month. Using the same US. Bureau of Labor Statistics for CPI, the lease was inflated/deflated based on the 2006 rent for years 2002‐
2005. Payroll Taxes
Discretionary
NO
Impact of salary adjustments in Note 1. See table for the annual impact of adjustments. Payroll taxes are adjusted based only on FICA. FICA taxes are split between employer and employee on the total amount. All other taxes are levied on a set dollar amount. Those taxes have already been paid thus have no impact on the differing amounts.
4
Truck/Equipment/Auto
Expense
Discretionary
NO
Upon our site visit, Mr. and Mrs. Jones indicated that
$1,000 a month of expenses is earmarked for their personal Recreation Vehicle. This item has been adjusted for 2002‐2006 5
Insurance
Discretionary
NO
Mr. Jones carries Mrs. Jones on his health insurance policy. However, fora comparable non‐family co‐owner who takes Shirley's place at Peachtree Plumbing, an additional premium for this person will be necessary. Mr. Jones' $1,000 monthly premium is used as a baseline for this person thus adding $12,000 to this line item on the income statement for 2002‐2006. Pension & Profit Sharing
Discretionary
YES
Peachtree Plumbing utilizes a a defined contribution plan. In each year, a specific percentage of the salary of each employee has been paid out by the employers to this plan. The employers contribute 2% of each employee's salary to the defined contribution plan. Because of the discrepancy in actual owner's compensation and the fair market value of those duties, an adjustment in contributions is required. See Table.

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