Advice to a Potential Investor Century Company was organized 15 months ago as a management consulting firm. At that time, the owners invested a total of $50,000 cash in exchange for stock. Century purchased equipment for $35,000 cash and supplies to be used in the business. The equipment is expected to last seven years with no salvage value. Supplies are purchased on account and paid for in the month after the purchase. Century normally has about $1,000 of supplies on hand. Its client base has increased so dramatically that the president and chief financial officer have approached an investor to provide additional cash for expansion. The balance sheet and income statement for the first year of business are as follows:

Required The investor has asked you to look at these financial statements and give an opinion about Century’s future profitability. Are the statements prepared in accordance with GAAP? Why or why not? Based on these two statements, what would you advise? What additional information would you need to give an educated opinion?

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Century Company Balance Sheet December 31, 2008 Liabilities and Stockholders' Equity Assets Cash $10,100 Accounts payable $ 2,300 Accounts receivable 1,200 Common stock 50,000 Supplies 16,500 Retained earnings 10,500 Equipment 35,000 Total $62,800 Total $62,800 Century Company Income Statement For the Year Ended December 31, 2008 Revenues Wages and salaries Utilities Net income $82,500 $60,000 12,000 72,000 $10,500