The owner of a small retail flooring company is projecting her company's financial performance and financial position for the current 2020 calendar year. The company began business in 2019, and by all measures, that first year had been a financial success. A small profit was earned, and the year ended in a strong financial position. But disruption caused by the COVID-19 pandemic has caused the need for new planning. A number of changes to business activity are projected, together enabling the construction of pro forma 2020 financial statements. Liquidity, profit, and the ability to take an annual owner's draw could then be assessed.
This case is optimally used early in an introductory financial accounting course, or as a stand-alone exercise that illustrates the construction of financial statements. It can also be used as two distinct accounting analyses: (i) students can use the case data to reconstruct the 2019 balance sheet and income statement provided within the case exhibits, and (ii) they can also use the new projections to complete the 2020 pro forma financial statements.