1. Using the information in the balance sheet for December 31, 2013 (Exhibit 2) and the fiscal year 2014 budgets (Exhibits 3 and 4), prepare a projected balance sheet for The Farm Winery for the fiscal year 2014. Based on the projections, can and should Madsen declare a dividend of $25,000 for the fiscal year 2014, excluding the $80,000 investment in additional vineyard development? If he should not, does The Farm Winery require additional capital contributions in the first half of 2014? Based on your analysis, to what extent will Madsen achieve the financial goals he has for The Farm Winery in 2014, 2015, and beyond?

Exhibit 1 The Farm Winery Income Statements FY 2011 FY 2012 FY 2013 $ 9,201 $ 61,948 $ 152,752 Net sales Cost of goods sold (incl. depreciation of $3,820, $29,100, and $30,740 in 2011, 2012, and 2013 respectively) 5,978 33,536 105,187 $ 3,223 $ 28,412 $ 47,565 Gross margin Selling, general and administrative (incl. depreciation of $2,546, $2,357, and $2,454 in 2011, 2012, and 2013 respectively) 36,559 34,806 32,475 $ $ Operating income before depreciation Depreciation and amortization $ (33,336) 3,554 (6,394) 2,304 15,090 2,304 $ (36,890) 8 $ (8,698) $ Operating income Interest income 12,786 $ (8,693) $ 12,791 Net Income $ (36,882) As an S-Corp. The Farm Winery does not pay income taxes. Source: The Farm Winery. Exhibit 2 The Farm Winery Balance Sheets 12/31/11 12/31/12 12/31/13 $ 26,433 $ 59,503 Current Assets Cash and cash equivalents Accounts receivable Prepayments to suppliers Inventory finished product Inventory in process Other current assets Total current assets 106,578 256,655 9.209 $ 398,875 77,748 402,002 7,745 $ 546,998 $ 8,606 9,863 5,321 159,474 465,210 8,009 $ 656,483 Fixed Assets Plant, property, and equipment Less accumulated depreciation Total net fixed assets 125,753 57,778 $ 67,975 152,364 91,539 $ 60,825 183,070 127,037 56,033 $ Total Assets $ 466,850 $ 607,823 $ 712,516 $ $ $ Liabilities Accounts payable Credit cards Total current liabilities 3,375 13,048 16,423 1,755 380 2,135 2,000 11,136 13,136 $ $ $ Total Liabilities $ 16,423 $ 2,135 $ 13,136 Equity Capital contributions Retained earnings (deficit) 537,324 (86,897) 701,279 (95,590) 782,179 (82,799) Total Equity $ 450,427 $ 605,689 $ 699,380 Total Liabilities and Equity $ 466,850 $ 607,824 $ 712,516 Source: The Farm Winery. Exhibit 3 Fiscal Year 2014 Final Budget 1Q 2014 20 2014 3Q 2014 4Q 2014 TOTAL $ $ $ $ Net sales Cost of goods sold (incl. depreciation) 50,000 34,200 36,000 18,700 44,000 27,100 95,000 45,100 $225,000 125,100 $ 15,800 13,000 $ 17,300 13,000 $ Gross margin Operating expenses 16,900 13,000 $ 49,900 21,000 $ 99,900 60,000 Net income (loss) $ 2,800 $ 4,300 $ 3,900 $ 28,900 $ 39,900 Source: The Farm Winery. Exhibit 4 Fiscal Year 2014 Budget and Selected Expense and Balance Sheet Items 1Q 2014 2Q 2014 3Q 2014 4Q 2014 Cash receipts From customers $ 50,863 $ 39,000 $ 42,000 $ 83,000 Cash payments (excl. capital expenditures and expansion) Grapes Winery expenses Bottling 25,679 Other 11,136 85,000 20,000 12,000 12,000 12,000 Capital expenditures Barrels Fermentation tank 20,000 30,000 Expansion 80,000 Depreciation 9,000 9,000 9,000 10,000 9,000 6,000 8,000 20,000 Assets at end of quarter Accounts receivable Prepayments to suppliers Inventory finished product Inventory in process Other current assets 125,274 503,210 8,009 106,574 511,210 8,009 79,474 519,210 8,009 144,374 515,210 8,009 Liabilities at end of quarter Accounts payable Credit cards 1,000 12,000 1,000 12,000 1,000 12,000 1,000 12,000 Source: The Farm Winery. Exhibit 1 The Farm Winery Income Statements FY 2011 FY 2012 FY 2013 $ 9,201 $ 61,948 $ 152,752 Net sales Cost of goods sold (incl. depreciation of $3,820, $29,100, and $30,740 in 2011, 2012, and 2013 respectively) 5,978 33,536 105,187 $ 3,223 $ 28,412 $ 47,565 Gross margin Selling, general and administrative (incl. depreciation of $2,546, $2,357, and $2,454 in 2011, 2012, and 2013 respectively) 36,559 34,806 32,475 $ $ Operating income before depreciation Depreciation and amortization $ (33,336) 3,554 (6,394) 2,304 15,090 2,304 $ (36,890) 8 $ (8,698) $ Operating income Interest income 12,786 $ (8,693) $ 12,791 Net Income $ (36,882) As an S-Corp. The Farm Winery does not pay income taxes. Source: The Farm Winery. Exhibit 2 The Farm Winery Balance Sheets 12/31/11 12/31/12 12/31/13 $ 26,433 $ 59,503 Current Assets Cash and cash equivalents Accounts receivable Prepayments to suppliers Inventory finished product Inventory in process Other current assets Total current assets 106,578 256,655 9.209 $ 398,875 77,748 402,002 7,745 $ 546,998 $ 8,606 9,863 5,321 159,474 465,210 8,009 $ 656,483 Fixed Assets Plant, property, and equipment Less accumulated depreciation Total net fixed assets 125,753 57,778 $ 67,975 152,364 91,539 $ 60,825 183,070 127,037 56,033 $ Total Assets $ 466,850 $ 607,823 $ 712,516 $ $ $ Liabilities Accounts payable Credit cards Total current liabilities 3,375 13,048 16,423 1,755 380 2,135 2,000 11,136 13,136 $ $ $ Total Liabilities $ 16,423 $ 2,135 $ 13,136 Equity Capital contributions Retained earnings (deficit) 537,324 (86,897) 701,279 (95,590) 782,179 (82,799) Total Equity $ 450,427 $ 605,689 $ 699,380 Total Liabilities and Equity $ 466,850 $ 607,824 $ 712,516 Source: The Farm Winery. Exhibit 3 Fiscal Year 2014 Final Budget 1Q 2014 20 2014 3Q 2014 4Q 2014 TOTAL $ $ $ $ Net sales Cost of goods sold (incl. depreciation) 50,000 34,200 36,000 18,700 44,000 27,100 95,000 45,100 $225,000 125,100 $ 15,800 13,000 $ 17,300 13,000 $ Gross margin Operating expenses 16,900 13,000 $ 49,900 21,000 $ 99,900 60,000 Net income (loss) $ 2,800 $ 4,300 $ 3,900 $ 28,900 $ 39,900 Source: The Farm Winery. Exhibit 4 Fiscal Year 2014 Budget and Selected Expense and Balance Sheet Items 1Q 2014 2Q 2014 3Q 2014 4Q 2014 Cash receipts From customers $ 50,863 $ 39,000 $ 42,000 $ 83,000 Cash payments (excl. capital expenditures and expansion) Grapes Winery expenses Bottling 25,679 Other 11,136 85,000 20,000 12,000 12,000 12,000 Capital expenditures Barrels Fermentation tank 20,000 30,000 Expansion 80,000 Depreciation 9,000 9,000 9,000 10,000 9,000 6,000 8,000 20,000 Assets at end of quarter Accounts receivable Prepayments to suppliers Inventory finished product Inventory in process Other current assets 125,274 503,210 8,009 106,574 511,210 8,009 79,474 519,210 8,009 144,374 515,210 8,009 Liabilities at end of quarter Accounts payable Credit cards 1,000 12,000 1,000 12,000 1,000 12,000 1,000 12,000 Source: The Farm Winery