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1. P2-3 Income statement preparation On December 31, 2006, Cathy Chen, a self-employed certified public accountant (CPA), completed her first full year in business. During

1. P2-3 Income statement preparation On December 31, 2006, Cathy Chen, a self-employed certified public accountant (CPA), completed her first full year in business. During the year, she billed $360,000 for her accounting services. She had two employees: a bookkeeper and a clerical assistant. In addition to her monthly salary of $8,000, Ms. Chen paid annual salaries of $48,000 and $36,000 to the bookkeeper and the clerical assistant, respectively. Employment taxes and benefit costs for Ms. Chen and her employees totaled $34,600 for the year. Expenses for office supplies, including postage, totaled $10,400 for the year. In addition, Ms. Chen spent $17,000 during the year on tax-deductible travel and entertainment associated with client visits and new business development. Lease payments for the office space rented (a tax-deductible expense) were $2,700 per month. Depreciation expense on the office furniture and fixtures was $15,600 for the year. During the year, Ms. Chen paid interest of $15,000 on the $120,000 borrowed to start the business. She paid an average tax rate of 30 percent during 2006. a. Prepare an income statement for Cathy Chen, CPA, for the year ended December 31, 2006. b. Evaluate her 2006 financial performance. 2. Balance sheet preparation Adam and Arin Adams have collected their personal asset and liability information and have asked you to put together a balance sheet as of December 31, 2015. The following information is received from the Adams family. Cash $ 300 Retirement funds, IRA $ 2,000 Checking 3,000 2014 Sebring 15,000 Savings 1,200 2010 Jeep 8,000 IBM stock 2,000 Money market funds 1,200 Auto loan 8,000 Jewelry and artwork 3,000 Mortgage 100,000 Net worth 76,500 Medical bills payable 250 Household furnishings 4,200 Utility bills payable 150 Credit card balance 2,000 Real estate 150,000 Personal loan 3,000 a. Create a personal balance sheet as of December 31, 2015. It should be similar to a corporate balance sheet. b. What must the total assets of the Adams family be equal to by December 31, 2015? c. What was their net working capital (NWC) for the year? (Hint: NWC is the difference between total liquid assets and total current liabilities.) 3) Josh Smith has compiled some of his personal financial data in order to determine his liquidity position. The data are as follows. Account Amount Cash $3,200 Marketable securities 1,000 Checking account 800 Credit card payables 1,200 Short-term notes payable 900 a. Calculate Joshs liquidity ratio. b. Several of Joshs friends have told him that they have liquidity ratios of about 1.8. How would you analyze Joshs liquidity relative to his friends? 4).A firm in the third year of depreciating its only asset, which originally cost $180,000 and has a 5-year MACRS recovery period, has gathered the following data relative to the current years operations: Accruals ......................................................................$ 15,000 Current assets ............................................................... 120,000 Interest expense ............................................................ 15,000 Sales revenue ................................................................ 400,000 Inventory ....................................................................... 70,000 Total costs before depreciation, interest, and taxes .. 290,000 Tax rate on ordinary income . 40% a. Use the relevant data to determine the operating cash flow (see Equation 4.2) for the current year. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firms cash flows. 5). Q1) Grenoble Enterprises had sales of $50,000 in March and $60,000 in April. Forecast sales for May, June, and July are $70,000, $80,00, and $100,000, respectively. Firm has a cash balance of $5,000 on May 1 and wants to sustain a minimum cash balance of $5,000. Provided following date, create and interpret cash budget for months of May, June, and July. (1) Firm makes 20% of sales for cash, 60% are collected in next month, and remaining 20% are collected in second month following sale. (2) Firm receives other income of $2,000 per month (3) Firm's actual or expected purchases, all made for cash, are $50,000, $70,000, and $80,000 for months of May through July, respectively. (4) Rent is $3,000 per month (5) Wages and salaries are 10% of previous month's sales. (6) Cash dividends of $3,000 will be paid in June. (7) Payment of principle and interest of $4,000 is due in June (8) Cash purchase of equipment costing $6,000 is scheduled in July (9) Taxes of $6,000 are due in June

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