1. [Stockholders equity] The owners of a new venture have decided to organize as a corporation. The initial equity investment is valued at $100,000 reflecting contributions of the entrepreneur and her family and friends. One hundred thousand shares of stock were initially issued.

a. What dollar amount would initially be recorded in the common stock account?

b. If a par value on the common stock was set at $.01 per share, show how the initial equity investment would be recorded.

c. Now assume that 20,000 additional shares of stock are sold to an angel investor at $5 per share six months after the initial incorporation. Show how your answer in Part A would change if the common stock did not have a par value. Also show how your answer in Part B would change given a par value of $.01 per share.

d. At the end of the first year of operation, the venture recorded an operating loss of $80,000. Show the dollar amounts in the common stock account, the additional paid-in- capital account, and the retained earnings account at the end of one year. Also indicate the cumulative amount in stockholders equity at the end of one year.

6. [Statement of Cash Flows and Cash Burn or Build] Cindy and Robert (Rob) Castillo founded the Castillo Products Company in 2015. The company manufactures components for personal decision assistant (PDA) products and for other hand-held electronic products.Year 2015 proved to be a test of the Castillo Products Companys ability to survive.However, sales increased rapidly in 2016 and the firm reported a net income after taxes of $75,000. Depreciation expenses were $40,000 in 2016. Following are the Castillo ProductsCompanys balance sheets for 2015 and 2016.

a. Calculate Castillos cash flow from operating activities for 2016.

b. Calculate Castillos cash flow from investing activities for 2016.

c. Calculate Castillos cash flow from financing activities for 2016.

e. Prepare a formal statement of cash flows for 2016 and identify the major cash inflows and outflows that were generated by the Castillo Company.

Use your calculation results from Parts A and B above to determine whether Castillo was building or burning cash during 2016 and indicate the dollar amount of the cash build or burn.

f. If Castillo had a net cash burn from operating and investing activities in 2016 divide the amount of burn by 12 to calculate an average monthly burn amount. If the 2017 monthly cash burn continues at the 2016 rate, indicate how long in months it will be before the firm runs out of cash if there are no changes in financing activities.

CASTILLO PRODUCTS COMPANY 2015 2016 Cash Accounts Receivables Inventories $20,000 280,000 500,000 800,000 540,000 -140.000 400.000 $1,000,000$1,200,000 $50,000 200,000 400,000 650,000 450,000 -100.000 350,000 Total Current Assets Gross Fixed Assets Accumulated Depreciation Net Fixed Assets Total Assets Accounts Payable Accruals Bank Loan Total Current Liabilities Long-Term Debt Common Stock (S.01 par) Additional Paid-in-Capital Retained Earnings $160,000 70,000 100,000 330,000 400,000 150,000 200,000 120,000 $1,000,000$1,200,000 $130,000 50,000 90,000 270,000 300,000 150,000 200,000 80,000 Total Liabilities & Equity