Financial Statement Exercise

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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 (use a separate sheet)

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 (use a separate 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 (use a separate sheet)

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!! 🙂

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