Assume you have started a new company on the first day of the year. You raise $100,000

from family and friends, and borrow $40,000 from the bank on a ten-year, 8% note, with

10% of the original principle due each year (on the morning of Dec. 31.) Your company

sells only for cash, and holds no inventory. All labor and materials are paid for at

delivery. Properly label all accounts.

1. Show the balance sheet for Jan. 1, 2002.

2. On Jan 2, 2002 you buy a machine for $75,000. It has a five-year life, and is

depreciated straight-line. Show the balance sheet for Jan. 2, 2002.

3. Your sales for the 2002 are $200,000 and for 2003 they are $250,000. Cost of goods

sold is 34% of sales, and labor is 38% of sales. Taxes are at 34%. Investors are paid 50%

of earnings as dividends. Show the income statement and balance sheet for 2002 and

2003. Assume debt repayments are made on the morning of Dec. 31 of each year. Show

details on GFA and Accumulated Depreciation. What is the cash flow available for each

year?

4. Show the cash "T" account for 2002 and 2003. Show all cash expenses off the income

statement. Explain how this ties into cashflow