Exercise: Constructing financial statements Two friends, Chris and Pat, started a small business from their college dormitory room, and named the business Cold Mountain Fridges. Cold Mountain Fridges purchased several refrigerators to rent to other students for use in their rooms. At the end of their first year of operations, the friends' records showed the information below. Current assets (cash and accounts receivable) Depreciation expense Interest expense Interest payable Long-term liabilities Other current liabilities Owners' equity Property and equipment (net) Revenues $2,000 1,000 200 200 3,200 800 1,800 4,000 2,000 1. 2. 3. 4. Construct a balance sheet and income statement for the business. Based on the balance sheet you created, how much working capital does Cold Mountain Fridges have? Suppose Cold Mountain Fridges is subject to corporate income tax at a rate of 30 percent. What is the company's net income after tax? Chris and Pat invested $500 each to capitalize Cold Mountain Fridges. To allow for future flexibility (such as selling shares to other investors), they placed a par value of $10 on each share; thus, each owner owns 50 shares. What were the earnings per share (EPS) of Cold Mountain Fridges for its first year of operations? Chris notices that the local appliance store is now charging $210 for the same model of refrigerator his company bought for $200. Given that Cold Mountain Fridges purchased 25 of these refrigerators, what should the company's balance sheet show as the value of property and equipment? 5