BreathescreenInc, Transaction Analysis and Financial Statements: Harvard Case Solution & Analysis

BreathescreenInc,Transaction Analysis and Financial Statements:

Analysis of Transactions:

Breathe screen Inc. produces tiny sensors that help to identify the particles in the atmosphere that causes cancer. Mr. Anderson has planned to develop the technology that detects the early stage cancer and helps patients to breathe directly from devices. For the development of new technology, Mr. Anderson wants to register the trademark of the instrument generated. In 2012, it cost $375 for trademark filling fee and $2,500 to lawyer for a suggestion of filling process.

Following Entries were passed in 2013 for the development of technology and filling trademark.

  • 17 million shares were issued to three investors at par value of $ 2 that increased the shareholders’ equity by $ 34 million and addition $ 3 million shares were issued for the trademark purpose, as it is a critical factor for the success of business.
  • Assets are increased by $13,500,000 because of purchase of machinery. The whole amount is paid by cash. To depreciate the machinery, straight line method is used with zero salvage value and five years of value.
  • Raw materials were purchased for production of Breathescreen and the payment is made by cash that costs $6000, 000 and $ 2 million cost of goods sold for pre-production model. Additional $3 million were paid for electrical, and packaging and payment are due in February 2014.
  • Due to high trademark price and production of equipment, the company decided to take the loan on July 1, 2013. $ 6 million was borrowed and $ 3 million paid as interest on all loan.
  • Sales generated in 2013 with the amount of $ 23 million and also collection due on January 2014 of about $9.6 million. Operating expenses of the company for 2013 includes Salaries, general and advertising expense of $ 7.7 million, and $ 3 million for utilities and labor.
  • At the year end, Trademark’s value increased to $ 10 million that increased the assets of the company.

Adjusting Entries:

Particulars Debit Credit
Purchase of Equipment for cash
Equipment $13,500,000  
                   Cash   $ 13,500,000

Particulars Debit Credit
Purchase of addition material due on Feb 2014
Inventory $ 3000,000  
               Accounts Payable   $ 3000,000

Particulars Debit Credit
Sales yet to be collected
Accounts Receivables $9,600,000  
                        Cash   $9,600,000

Particulars Debit Credit
Breathescreen promised to deliver the units on March 2014
                 Deferred Revenue    

Particulars Debit Credit
Equipment cost $13,500,000, with zero salvage value and five years remaining to maturity.
Depreciation expense $2,700,000  
              Accumulated Depreciation   $2,700,000

Effect of Each Transaction:

Income Statement

The income statement shows the performance of the company for the end of the period by examining profit and loss of the company. Moreover, it shows how much revenue is generated to pay operating and non-operating expenses.

Based on the information as on 2013, the sales show the revenue made in 2013 and cost of goods is money invested for the production of technology, which resulted in gross profit of $ 21 million. Gross profit amount shows the funds to pay out all operating expenses that cost $ 14,900,400, and after paying interest expense of $ 3 million and estimated tax of 40% resulted in income generated from operations totaled $ 3.48 million. Shares issued for Trademarkand production of new technology diluted its shareholders’ earnings to $ 0.71 whichshows that each investor will have $ 0.71 of each stock purchased from the earnings of the company.

Balance Sheet

The balance sheet shows the company's position by summarizing company's assets, liabilities and owner's equity for a certain period. Balance sheet aware the management, what company has now or will have and as well as the amount invested by shareholders....................

This is just a sample partial case solution. Please place the order on the website to order your own originally done case solution.

Share This


Save Up To




Register now and save up to 30%.