You should use MS Excel for this assignment. PROBLEM Congratulations! You just f

Question

You should use MS Excel for this assignment.

PROBLEM

Congratulations! You just finished a successful year (YEAR NUMBER 2) as Chief Financial Officer of "Body Fumigation Development" (BFD) and animal extermination facility. The CEO

just asked you for a quick, summarized copy of the financial statements. Of course you say, no problem boss, it will only take me a few minutes----NOT!! However, like a good employee, you tell him you will produce this summary for him as soon as possible.

a) Construct an Income Statement

Your current year figures are as follows:

Revenues, $100,000

Expenses, $45,000

Depreciation Expense, oops¿you still have to figure that out. Two pieces of equipment have been purchased--1

piece in year 1 for $70,000 that has a 5 year life with no salvage value, 1 piece in year 2 for $500,000 that has a 25 year life with no salvage value. You realize that your boss needs this info quickly, so you are just going to figure out the depreciation expense for the current year (year 2). You will use the straight line method. Your tax rate is estimated at 30%.

b) Construct a Balance Sheet

You have current balances as follows: Accounts Payable, $10,000; Accounts Receivable, $50,000; Cash, $20,000; Wages Payable, $30,000; And of course your equipment as stated in the preceding paragraph. Your prior year net income was $0 and prior year paid in capital was $83,000. You do have some stockholder¿s equity (hint: in this section you will have two line items-- 1) retained earnings, for which you need to figure out on your own; and 2) paid in capital¿current year paid in capital balance is $537,300)

c) Construct a Cash Flow

All prior year balance sheet items (asset and liability sections only) were 10% lower with the exception of equipment & depreciation, which you have already figured out from the prior sections. I am looking forward to this discussion since (I have heard rumored through the cyber grapevine) you are all so bright and intelligent!! :-)

Explanation / Answer

Income statement Revenues 100000 Less Exp 45000 Operating Profit 55000 Less Dep 34000 Profit before tax 21000 Tax @ 30% 6300 Profit After tax 14700 Balance Sheet Capital 537300 Equipment 522000 Profit of curent year 14700 Cash 20000 Wages payble 30000 Accounts receivable 50000 Accounts Payble 10000 592000 592000 Cash flow Opening cash bal - 10% less 18000 Profit of the curr year 14700 Add Dep 34000 Less WC 1000 Capital increased 454300 Equipment purchased 500000 Closing Cash Bal 20000 Dep Eq 1 70000 5 14000 Eq 2 500000 25 20000 34000 Eq 1 70000 Dep 28000 42000 Eq 2 500000 Dep 20000 480000 Eq value 522000 WC CY PY AR 50000 90% 45000 5000 AP 10000 90% 9000 1000 WP 30000 90% 27000 3000 1000

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