Hi

you did this problem for me before, however it should be done in the format attached.

Would it be possible for you to do the transactions in the excel format.

Chemalite, Inc. Transaction Analysis Transaction Cash Accts Rec Inventory Assets Machinery Accum Depr Patent Total Interm Transactions - - - - - - Total of Transactions - - - - - - Chemalite, Inc. Income Statement For Year Ended December 31, 2003 Revenues Expenses: Legal fees Prototype Advertising Manufacturing Salaries Interest Cost of Goods Sold Amortization - Chemalite, Inc. Balance Sheet December 31, 2003 Cash Accounts Rec. Inventory Equipment (net) Patent (net) Total Assets Notes Pay Common Stock Retained Earnings Liabilities + Equi Common Stock Notes Payable - - - - Chemalite, Inc. Statement of Cash Flows For Year Ended December 31, 2 - Operating Cash Flows Net Income Add: Deprec./Amortiz. Less: Incr in Accts. Rec Less: Incr in Inventory Total Operating Activities Investing Cash Flows Purchase Equipment Financing Cash Flows Depreciation Total Expense Net Income Total Liab + Equity - - Sale of Stock Change in Cash Beginning Cash Change in Cash Ending Cash es + Equity Revenues Expenses - - - - nc. h Flows mber 31, 2003 mortiz. ccts. Rec. ventory pment - Total - - - RUNNING HEAD: CHEMALITE INCORPORATION TOPIC: CHEMALITE INCORPORATION NAME: INSTITUTION: DATE SUBMITTED: 2 CHEMALITE INCORPORATION JOURNAL ENTRIES Date 2003 Jan 2 Explanation Cash Patent Common stock Jan 15 Pre-operation costs Cash Jun 15 Machinery Cash Jun 24 Inventory Cash Jul Prototypes Cash Jul - Cash (754,500 - 69,500) Dec Accounts receivable Sales Inventory Cash Advertising expenses Cash Direct labor, salaries, overheads and other expenses Cash Machinery Cash Interest expense Cash Depreciation expense (W1) Accumulated depreciation - Machinery Amortization expense (W2) Patent Workings Debit $375,000 125,000 Credit $500,000 7,500 7,500 62,500 62,500 75,000 75,000 23,750 23,750 685,000 69,500 754,500 175,000 175,000 22,500 22,500 430,000 430,000 150,000 150,000 750 750 10,625 10,625 25,000 25,000 W1 Depreciation of machinery = (62,500 + 150,000)/10 = $21,250 per annum = $10,625 semiannually W2 Amortization of the patent = 125,000/5 years = $25,000 per annum 3 CHEMALITE INCORPORATION T-ACCOUNTS Cash Date 2003 Jan 2 Jan 15 Jun 15 Jun 24 Jul Jul - 2003 Explanation Credit Balance 7,500 62,500 75,000 23,750 375,000 367,500 305,000 230,000 206,250 891,250 Inventory Advertising expenses Direct labor, salaries, overheads and other expenses 175,000 22,500 430,000 716,250 693,750 263,750 Machinery Interest expense 150,000 750 113,750 113,000 Common stock Pre-operation costs Machinery Inventory Prototypes Dec Sales Debit 375,000 685,000 4 CHEMALITE INCORPORATION Patent Date 2003 Jan 2 Jul - 2003 Explanation Debit Common stock Dec Amortization Credit Balance 25,000 125,000 100,000 Credit Balance 500,000 500,000 Credit Balance 125,000 Common Stock Date 2003 Jan 2 Explanation Debit Shares Pre-operation costs Date 2003 Jan 15 Explanation Debit Cash 7,500 7,500 Machinery Date 2003 Jun 15 Jul - 2003 Explanation Cash Dec Cash Debit 62,500 150,000 Credit Balance 62,500 212,500 5 CHEMALITE INCORPORATION Inventory Date 2003 Jun 24 Jul - 2003 Explanation Debit Cash Dec Cash Credit 75,000 175,000 Supplies expense (250,000 - 55,000) Balance 75,000 250,000 195,000 55,000 (given) Prototypes Date 2003 Jul Explanation Debit Cash 23,750 Credit Balance 23,750 Accounts receivable Date Jul - 2003 Explanation Dec Sales Debit 69,500 Credit Balance 69,500 Debit Credit 69,500 685,000 Balance 754,500 Debit 22,500 Credit Balance 22,500 Sales Date Jul - 2003 Explanation Dec Accounts receivable Cash Advertising expense Date Jul - 2003 Explanation Dec Cash Direct labor, salaries, overheads and other expenses 6 CHEMALITE INCORPORATION Date Jul - 2003 Explanation Dec Cash Debit 430,000 Credit Balance 430,000 Debit 750 Credit Balance 750 Interest expense Date Jul - 2003 Explanation Dec Cash Depreciation expense Date Jul - 2003 Explanation Dec Accumulated Machinery Debit depreciation- 10,625 Credit Balance 10,625 Accumulated depreciation - Machinery Date Jul - 2003 Explanation Dec Depreciation expense Debit Credit 10,625 Balance 10,625 Amortization expense Date Explanation Jul - Dec Patent 2003 Debit 25,000 Supplies expense Credit Balance 25,000 7 CHEMALITE INCORPORATION Date Explanation Jul - Dec Inventory 2003 Debit 195,000 Credit Balance 195,000 TRIAL BALANCE CHEMALITE, INC. TRIAL BALANCE AS AT DEC 31, 2004 ACCOUNTS Cash Patents Pre-operation costs Machinery Inventory Prototypes Accounts receivable Advertising expense Direct labor, overhead and other expenses Interest expense Depreciation expense Amortization expense Supplies expense Common stock Sales Accumulated depreciation- machinery TOTAL DEBIT 113,000 100,000 7,500 212,500 55,000 23,750 69,500 22,500 430,000 750 10,625 25,000 195,000 1,265,125 CREDIT 500,000 754,500 10,625 1,265,125 PREPARING THE FINANCIAL STATEMENTS FROM THE TRIAL BALANCE 1. STATEMENT OF INCOME CHEMALITE, INC. STATEMENT OF INCOME FOR THE YEAR ENDED DEC 31, 2004 Sales $754,500 8 CHEMALITE INCORPORATION Expenses Advertising (22,500) Direct labor, overhead and other expenses (430,000) Depreciation (10,625) Amortization (25,000) Supplies (195,000) Interest (750) Net Income 70,625 2. STATEMENT OF OWNER'S EQUITY CHEMALITE, INC. STATEMENT OF OWNER'S EQUITY FOR THE YEAR ENDED DEC 31, 2004 Common Stock Net income Owner's Equity, 31/12/2004 $500,000 70,625 570,625 3. STATEMENT OF FINANCIAL POSITION CHEMALITE, INC. STATEMENT OF FINANCIAL POSITION AS AT DEC 31, 2004 ASSETS Current Assets Cash Inventory Accounts receivable Total current assets Non-current Assets Pre-operation costs Prototypes $113,000 55,000 69,500 237,500 7,500 23,750 9 CHEMALITE INCORPORATION Machinery, net of depreciation 201,875 Patents, net of amortization TOTAL ASSETS 100,000 570,625 OWNER'S EQUITY AND LIABILITIES Owner's Equity Liabilities TOTAL OWNER'S EQUITY AND LIABILITIES 570,625 -570,625 4. STATEMENT OF CASHFLOWS CHEMALITE, INC. STATEMENT OF CASHFLOWS FOR THE YEAR ENDED DEC 31, 2004 Cash flows from operating activities Cash receipts from sale of chemalites Cash payments for: Advertising Direct labor, overhead and other expenses Inventory Net cash flows from operating activities $685,000 (22,500) (430,000) (250,000) (17,500) Cash flows from investing activities Purchase of machinery (212,500) Payment for pre-operation costs (7,500) Payment for prototypes (23,750) Net cash flows from investing activities (243,750) 10 CHEMALITE INCORPORATION Cash flows from financing activities Issue of shares Payment of interest expense Net cash flows from financing activities Cash balance at end of the year 375,000 (750) 374,250 113,000 Reasons why the company should continue to operate Chemalite Inc. should continue to operate despite the decrease of the cash reserves held by the firm during the year. From the financial statements developed, the company was able to make a profit as shown from the statement of income. For the year 2003, the company was able to make sales of the chemalite of $754,500. After deducting the operating and other expenses, the company reported an income of $70,625 after payment of the interest expense. This means that the company was profitable for the year 2003 and should therefore continue in operation. The firm can take advantage of the patents and the great innovation in the production of the chemalite to double its profits before other firms identify other alternative ways of making the product. Therefore the firm should continue operating (Lafrey & Charan, 2008). The shareholder's wealth has also been maximized. The investors of the company are usually contented if the company management are able to take into consideration the maximization and increasing the value of the shareholder's investment (Wheeler & Sillanpaa, 1997). From the 11 CHEMALITE INCORPORATION current year, the company reported profits for the year. The net income generated from the operations of the firm improved the shareholder's value since even the shareholder's equity improved as can be seen from the statement of the changes in the shareholder's equity from $500,000 to $570,625 at the end of the year. This shows that the firm is progressing towards the right direction and should therefore continue to operate. Every organization strives to maintain a positive cash balance such that the firm is able to meet its maturing short term obligations and expenses and as well as being able to remain solvent such that the firm can honor its agreements and covenants with lenders, creditors, suppliers. Chemalite has a positive cash balance at the end of the year as reported in the statement of cash flows. From the financial statement, at the end of the year, the ending balance of cash flows was $113,000. This means that the company has sufficient cash balance to meet any short term obligations. Therefore, this implies that the liquidity and solvency of the firm is better and should hence continue operating since the company is not facing any financial difficulties. This can be demonstrated when the company was able to borrow funds from the lender and the company repaid the principal and interest due before the end of the year. Any firm with a strong financial muscles is likely to succeed in its future operations and thus Chemalite, Inc. should continue being in business. Reasons for shutting down the company The company is facing risks of poor management. Benett Alexander - the inventor of the Chemalite production idea, took over the active management of the Chemalite Inc. Company. Despite Alexander being a chemical engineer, he is not an expert in the business world. He lacks the business management expertise and skills to manage the business. He doesn't even 12 CHEMALITE INCORPORATION understand simple book keeping, financial reporting or financial management concepts. This can translate to poor business decision making which may expose the firm to severe losses. As such, the company should be shut down so as to avoid the risk of the firm running into losses as a result of poor management. The losses may lead to loss of the shareholder's investments and legal suits arising from dishonored contracts with lenders of funds and suppliers (Bateman & Snell, 2013). Chemalite Inc. should therefore be closed down indefinitely till proper management with business expertise is deployed. Recommendation The company should continue operating. Considering the good financial performance of the company ranging from the profits generated for the year 2003 and the positive net cash flows generated by the company for the year, the company can grow and expand significantly if it continues its operations. The issue of management problems can be fixed by recruiting a business knowledgeable personnel to run the company. 13 CHEMALITE INCORPORATION References Bateman, T. S., & Snell, S. (2013). Management. New York, NY.: McGraw-Hill/Irwin. Lafley, A. G., & Charan, R. (2008). The game-changer: how you can drive revenue and profit growth with innovation. New York: Crown Business. Wheeler, D., & Sillanpaa, M. (1997). The stakeholder corporation: a blueprint for maximizing stakeholder value. London: Pitman. 14 CHEMALITE INCORPORATION Chemalite, Inc. Transaction Analysis Transaction Cash Accts Rec Outstanding shares (start of year) Beginning balance 375,000 Patents(beginning balance) Legal fees Purchase of Machinery Purchase of inventory Prototypes Interim Transactions Sales Purchase of inventory Advertising Manufacturing costs Labour costs Purchase of machinery Interest on loan Depreciation Amortization Cost of goods Total of Transactions 375,000 685,000 1,060,000 Chemalite, Inc. Trial Balance For Year Ended December 31, 2003 Cash 113,000 Patents 100,000 Preoperation Costs 7,500 Machinery 212,500 69,500 69,500 Assets Inventory Machinery Accum Depr ### Total 375,000 125,000 62,500 75,000 - - ### ### ### ### ### ### 75,000 ### 62,500 - - 75,000 62,500 - 125,000 637,500 - 500,000 - ### 754,500 175,000 150,000 1,717,000 - ### ### ### ### ### ### ### ### ### 500,000 150,000 212,500 - Patent ### 125,000 ### ### ### ### 175,000 ### ### ### ### ### ### ### ### 250,000 - Notes Payable Liabilities Common Stock 500,000 ### - ### - ### ### ### ### ### ### 125,000 Inventory Prototypes Accounts Receivables Advertising Expenses Direct Labour and overhead e Interest expenses Depreciation Expenses Amortization Expenses Supplies Expenses Common Stock Sales Accumulated Depreciation 55,000 23,750 69,500 22,500 430,000 750 10,625 25,000 195,000 1,265,125 500,000 754,500 10,625 1,265,125 Chemalite, Inc. Income Statement For Year Ended December 31, 2003 Revenues Expenses: Legal fees Prototype Advertising Manufacturing and Salaries Interest Cost of Goods Sold Amortization Depreciation Total Expense Net Income 754,500 7,500 23,750 22,500 430,000 750 195,000 25,000 10,625 Chemalite, Inc. (715,125) 39,375 ies + Equity Revenues Expenses - - Total 500,000 - - 7,500 23,750 7,500 23,750 - 31,250 31,250 22,500 350,000 80,000 750 10,625 25,000 195,000 715,125 754,500 22,500 350,000 80,000 750 10,625 25,000 195,000 1,469,625 754,500 754,500 Patent Date Explanation Debit 2-Jan Common stock 125,000 Jul - Dec 2003 Amortization Credit Balance 2003 125,000 25,000 100,000 Credit Balance Common Stock Date 2003 2-Jan Explanation Debit Shares 500,000 500,000 Pre-operation costs Date 2003 15-Jan Machinery Date 2003 15-Jun Jul - Dec 2003 Inventory Date 2003 24-Jun Jul - Dec 2003 Explanation Debit Cash 7,500 Explanation Debit Cash Cash 62,500 150,000 Explanation Debit Credit Balance 7,500 Credit Balance 62,500 212,500 Credit Balance Cash 75,000 75,000 Cash 175,000 250,000 Supplies expense (250,000 195,000 55,000 - 55,000) Prototypes Date 2003 Jul Explanation Debit Credit Balance Cash 23,750 Accounts receivable Date Jul - Dec 2003 Explanation Sales Debit 69,500 Credit Balance 69,500 Advertising expense Date Jul - Dec 2003 Explanation Cash Debit 22,500 Credit Balance 22,500 Explanation Cash Debit Credit 430,000 Balance 430,000 Date Jul - Dec 2003 Explanation Cash Debit 750 Credit Balance 750 Depreciation expense Date Explanation Debit Credit Balance 23,750 Direct labor, salaries, overheads and other expenses Date Jul - Dec 2003 Interest expense Jul - Dec 2003 Accumulated depreciation10,625 Machinery 10,625 Accumulated depreciation Machinery - Date Explanation Jul - Dec 2003 Amortization expense Date Jul - Dec 2003 Debit Credit Balance Depreciation expense 10,625 10,625 Explanation Patent Debit 25,000 Credit Balance 25,000 Explanation Inventory Debit Credit 195,000 Balance 195,000 Supplies expense Date Jul - Dec 2003 Sales Date Debit Credit Balance 69,500 69,500 685,000 754,500 Cash Explanation Debit Credit 2-Jan Common stock 375,000 15-Jan Pre-operation costs 7,500 15-Jun 24-Jun Jul Jul - Dec 2003 Machinery Inventory Prototypes Sales Inventory 62,500 75,000 23,750 Jul - Dec 2003 Date 2003 Explanation Accounts receivable Cash Balance 375,000 367,500 305,000 230,000 206,250 685,000 891,250 175,000 716,250 Advertising expenses 22,500 693,750 Direct labor, salaries, overheads and other expenses 430,000 263,750 Machinery 150,000 113,750 Interest expense 750 113,000 Chemalite, Inc. Transaction Analysis Transaction Outstanding shares (start of year) Beginning balance Patents(beginning balance) Legal fees Purchase of Machinery Purchase of inventory Prototypes Cash Interim Transactions Sales Purchase of inventory Advertising Manufacturing costs Labour costs Purchase of machinery Interest on loan Depreciation Amortization Cost of goods Total of Transactions Accts Rec Total 375,000 125,000 (7,500) (62,500) (75,000) (23,750) - ### ### ### ### ### (7,500) (62,500) (75,000) (23,750) - ### ### 75,000 ### 62,500 - - ### 125,000 ### ### ### ### 206,250 - 75,000 62,500 - 125,000 331,250 - 500,000 - ### 754,500 (175,000) (22,500) (350,000) (80,000) (150,000) (750) (10,625) (25,000) 271,875 - ### ### ### ### ### ### ### ### ### 500,000 69,500 69,500 754,500 175,000 ### ### ### ### ### ### ### ### 250,000 150,000 212,500 - Patent - 685,000 (175,000) (22,500) (350,000) (80,000) (150,000) (750) 113,000 - Notes Payable Liabilities Common Stock 500,000 ### 375,000 Chemalite, Inc. Income Statement For Year Ended December 31, 2003 Revenues Expenses: Assets Inventory Machinery Accum Depr (10,625) (25,000) (35,625) ### ### ### ### ### 125,000 Legal fees Prototype Advertising Manufacturing and Salaries Interest Cost of Goods Sold Amortization Depreciation Total Expense Net Income 7,500 23,750 22,500 430,000 750 195,000 25,000 10,625 Chemalite, Inc. (715,125) 39,375 ies + Equity Revenues Expenses - - Total 500,000 - - (7,500) (23,750) (7,500) (23,750) - (31,250) (31,250) (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) (715,125) 754,500 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) 39,375 754,500 754,500 Chemalite, Inc. Transaction Analysis Transaction Outstanding shares (cash) Beginning balance Patents(beginning balance) Legal fees Purchase of Machinery Purchase of inventory Prototypes Cash Interim Transactions Sales Purchase of inventory Advertising Manufacturing costs Labour costs Purchase of machinery Interest on loan Depreciation Amortization Cost of goods Total of Transactions 375,000 (7,500) (62,500) (75,000) (23,750) Accts Rec - Inventory ### ### ### ### ### 75,000 ### 206,250 - 75,000 685,000 (175,000) (22,500) (350,000) (80,000) (150,000) (750) 113,000 Chemalite, Inc. Trial Balance For Year Ended December 31, 2003 Cash 113,000 Patents 100,000 Preoperation Costs 7,500 Machinery 212,500 69,500 69,500 175,000 ### ### ### ### ### ### ### (195,000) 55,000 Assets Machinery Accum Depr 62,500 62,500 150,000 212,500 Liabilities Common Stock 375,000 ### 125,000 ### ### ### ### Patent ### ### 125,000 ### ### ### ### Total 375,000 125,000 (7,500) (23,750) Notes Payable - - 125,000 468,750 - 500,000 - ### 754,500 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) 539,375 - ### ### ### ### ### ### ### ### ### 500,000 (10,625) (10,625) 201,875 ### ### ### ### (25,000) ### 100,000 Inventory Prototypes Accounts Receivables Advertising Expenses Direct Labour and overhead e Interest expenses Depreciation Expenses Amortization Expenses Supplies Expenses Common Stock Sales Accumulated Depreciation 55,000 23,750 69,500 22,500 430,000 750 10,625 25,000 195,000 1,265,125 500,000 754,500 10,625 1,265,125 Chemalite, Inc. Income Statement For Year Ended December 31, 2003 Revenues Expenses: Legal fees Prototype Advertising Manufacturing and Salaries Interest Cost of Goods Sold Amortization Depreciation Total Expense Net Income 754,500 7,500 23,750 22,500 430,000 750 195,000 25,000 10,625 Chemalite, Inc. (715,125) 39,375 ies + Equity Revenues - Expenses (7,500) (23,750) Total 375,000 125,000 (7,500) (23,750) - (31,250) 468,750 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) (715,125) 754,500 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) 539,375 754,500 754,500 General Journal Date 2003 2-Jan Explanation Debit Patents Common stock 125,000 Credit 125,000 (being exchange of patents for shares.) 31-Dec 31-Dec Depreciation Accumulated depriciation Amortization Accumulated amortization 10,625 10,625 25,000 25,000 CASH PAYMENTS JOURNAL DATE 2003 15-Jan Other POST REF Accounts ACCOUNT DEBITED DR. Preoperation costs 15-Jun Machinery 24-Jun Inventory Jul Prototypes Jul - Dec 2003 Direct costs Machinery Interest Advertising Inventory Page 1 Accounts Cash Payable CR. DR. 7500 7500 62500 62500 75000 75000 23,750 23,750.00 430,000 430,000.00 150,000 150,000.00 750 750.00 22,500 22,500.00 175,000 175,000.00 947,000 947,000 x CASH RECEIPTS JOURNAL Account credited 2-Jan common stock Jul - Dec 2003 Sales POST REF Other CR Page 1 Sales Store Sales CR. 375,000 685,000 Cash DR 375,000 685,000 Sales journal DATE ACCOUNT DEBITED jul-dec 200Auto spares POST REF Accounts sales cr Rec DR 69500.00 69500.00 Patent Date 2003 2-Jan Jul - Dec 2003 Common Stock Date 2003 2-Jan 2-Jan Pre-operation costs Date 2003 15-Jan Machinery Date 2003 15-Jun Jul - Dec 2003 Inventory Date 2003 24-Jun Jul - Dec 2003 Prototypes Date 2003 Explanation Debit Common stock Amortization 125,000 Explanation Debit Patents Cash Credit Balance 25,000 125,000 100,000 Credit Balance 125,000 125,000 375,000 500,000 Explanation Debit Cash 7,500 Explanation Debit Cash Cash 62,500 150,000 Explanation Debit Credit Balance 7,500 Credit Balance 62,500 212,500 Credit Balance Cash 75,000 75,000 Cash 175,000 250,000 Cost of goods (250,000 - 195,000 55,000 55,000) Explanation Debit Credit Balance Jul Cash 23,750 23,750 Accounts receivable Date Jul - Dec 2003 Explanation Sales Debit 69,500 Credit Balance 69,500 Advertising expense Date Jul - Dec 2003 Explanation Cash Debit 22,500 Credit Balance 22,500 Explanation Cash Debit Credit 430,000 Balance 430,000 Explanation Cash Debit 750 Credit Balance 750 Explanation Debit Accumulated depreciation10,625 Machinery Credit Balance Explanation Depreciation expense Credit 10,625 Direct labor, salaries, overheads and other expenses Date Jul - Dec 2003 Interest expense Date Jul - Dec 2003 Depreciation expense Date Jul - Dec 2003 Accumulated depreciation Machinery Date Jul - Dec 2003 10,625 Debit Balance 10,625 Amortization expense Date Jul - Dec 2003 Explanation Patent Debit 25,000 Credit Balance 25,000 Explanation Inventory Debit Credit 195,000 Balance 195,000 Supplies expense Date Jul - Dec 2003 Sales Date Jul - Dec 2003 Date 2003 2-Jan 15-Jan 15-Jun 24-Jun Jul Jul - Dec 2003 Explanation Accounts receivable Cash Cash Explanation Common stock Pre-operation costs Machinery Inventory Prototypes Sales Inventory Advertising expenses Debit Credit Balance 69,500 69,500 685,000 754,500 Debit Credit Balance 375,000 375,000 7,500 367,500 62,500 305,000 75,000 230,000 23,750 206,250 685,000 891,250 175,000 716,250 22,500 693,750 Direct labor, salaries, overheads and other expenses 430,000 263,750 Machinery Interest expense 150,000 113,750 750.00 113,000 Reasons why the company should continue to operate Chemalite Inc. should continue to operate despite the decrease of the cash reserves held by the firm duri year. From the financial statements developed, the company was able to make a profit as shown from th statement of income. For the year 2003, the company was able to make sales of the chemalite of $754,5 After deducting the operating and other expenses, the company reported an income of $39,375 after pay of the interest expense. This means that the company was profitable for the year 2003 and should theref continue in operation. The firm can take advantage of the patents and the great innovation in the produc of the chemalite to double its profits before other firms identify other alternative ways of making the pro Therefore the firm should continue operating (Lafrey & Charan, 2008). The shareholder's wealth has also been maximized. The investors of the company are usually contented company management are able to take into consideration the maximization and increasing the value of t shareholder's investment (Wheeler & Sillanpaa, 1997). From the current year, the company reported pro for the year. The net income generated from the operations of the firm improved the shareholder's value even the shareholder's equity improved as can be seen from the statement of the changes in the sharehol equity from $500,000 to $539,375 at the end of the year. This shows that the firm is progressing towards right direction and should therefore continue to operate. Every organization strives to maintain a positive cash balance such that the firm is able to meet its matu short term obligations and expenses and as well as being able to remain solvent such that the firm can h its agreements and covenants with lenders, creditors, suppliers. Chemalite has a positive cash balance at end of the year as reported in the statement of cash flows. From the financial statement, at the end of the the ending balance of cash flows was $113,000. This means that the company has sufficient cash balanc meet any short term obligations. Therefore, this implies that the liquidity and solvency of the firm is bet and should hence continue operating since the company is not facing any financial difficulties. This can demonstrated when the company was able to borrow funds from the lender and the company repaid the principal and interest due before the end of the year. Any firm with a strong financial muscles is likely to succeed in its future operations and thus Chemalite, Inc. should continue being in business. Reasons for shutting down the company The company is facing risks of poor management. Benett Alexander - the inventor of the Chemalite production idea, took over the active management of the Chemalite Inc. Company. Despite Alexander b chemical engineer, he is not an expert in the business world. He lacks the business management expertis skills to manage the business. He doesn't even understand simple book keeping, financial reporting or financial management concepts. This can translate to poor business decision making which may expose firm to severe losses. As such, the company should be shut down so as to avoid the risk of the firm runn into losses as a result of poor management. The losses may lead to loss of the shareholder's investments legal suits arising from dishonored contracts with lenders of funds and suppliers (Bateman & Snell, 201 Chemalite Inc. should therefore be closed down indefinitely till proper management with business exper deployed. Recommendation The company should continue operating. Considering the good financial performance of the company ra from the profits generated for the year 2003 and the positive net cash flows generated by the company f year, the company can grow and expand significantly if it continues its operations. The issue of manage problems can be fixed by recruiting a business knowledgeable personnel to run the company. References Bateman, T. S., & Snell, S. (2013). Management. New York, NY.: McGraw-Hill/Irwin. Lafley, A. G., & Charan, R. (2008). The game-changer: how you can drive revenue and profit growth w innovation. New York: Crown Business. Wheeler, D., & Sillanpaa, M. (1997). The stakeholder corporation: a blueprint for maximizing stakehol value. London: Pitman References Bateman, T. S., & Snell, S. (2013). Management. New York, NY.: McGraw-Hill/Irwin. Lafley, A. G., & Charan, R. (2008). The game-changer: how you can drive revenue and profit growth w innovation. New York: Crown Business. Wheeler, D., & Sillanpaa, M. (1997). The stakeholder corporation: a blueprint for maximizing stakehol value. London: Pitman ves held by the firm during the profit as shown from the the chemalite of $754,500. me of $39,375 after payment 2003 and should therefore nnovation in the production ways of making the product. ny are usually contented if the increasing the value of the he company reported profits the shareholder's value since changes in the shareholder's m is progressing towards the is able to meet its maturing such that the firm can honor positive cash balance at the tement, at the end of the year, as sufficient cash balance to vency of the firm is better ial difficulties. This can be he company repaid the ncial muscles is likely to n business. tor of the Chemalite ny. Despite Alexander being a ss management expertise and financial reporting or king which may expose the he risk of the firm running areholder's investments and (Bateman & Snell, 2013). ment with business expertise is mance of the company ranging rated by the company for the ns. The issue of management he company. /Irwin. nue and profit growth with or maximizing stakeholder /Irwin. nue and profit growth with or maximizing stakeholder Chemalite, Inc. Transaction Analysis Transaction Outstanding shares (start of year) Beginning balance Patents(beginning balance) Legal fees Purchase of Machinery Purchase of inventory Prototypes Cash Interim Transactions Sales Purchase of inventory Advertising Manufacturing costs Labour costs Purchase of machinery Interest on loan Depreciation Amortization Cost of goods Total of Transactions Accts Rec Total 375,000 125,000 (7,500) (62,500) (75,000) (23,750) - ### ### ### ### ### (7,500) (62,500) (75,000) (23,750) - ### ### 75,000 ### 62,500 - - ### 125,000 ### ### ### ### 206,250 - 75,000 62,500 - 125,000 331,250 - 500,000 - ### 754,500 (175,000) (22,500) (350,000) (80,000) (150,000) (750) (10,625) (25,000) 271,875 - ### ### ### ### ### ### ### ### ### 500,000 69,500 69,500 754,500 175,000 ### ### ### ### ### ### ### ### 250,000 150,000 212,500 - Patent - 685,000 (175,000) (22,500) (350,000) (80,000) (150,000) (750) 113,000 - Notes Payable Liabilities Common Stock 500,000 ### 375,000 Chemalite, Inc. Income Statement For Year Ended December 31, 2003 Revenues Expenses: Assets Inventory Machinery Accum Depr (10,625) (25,000) (35,625) ### ### ### ### ### 125,000 Legal fees Prototype Advertising Manufacturing and Salaries Interest Cost of Goods Sold Amortization Depreciation Total Expense Net Income 7,500 23,750 22,500 430,000 750 195,000 25,000 10,625 Chemalite, Inc. (715,125) 39,375 ies + Equity Revenues Expenses - - Total 500,000 - - (7,500) (23,750) (7,500) (23,750) - (31,250) (31,250) (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) (715,125) 754,500 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) 39,375 754,500 754,500 Chemalite, Inc. Transaction Analysis Transaction Outstanding shares (cash) Beginning balance Patents(beginning balance) Legal fees Purchase of Machinery Purchase of inventory Prototypes Cash Interim Transactions Sales Purchase of inventory Advertising Manufacturing costs Labour costs Purchase of machinery Interest on loan Depreciation Amortization Cost of goods Total of Transactions 375,000 (7,500) (62,500) (75,000) (23,750) Accts Rec - Inventory ### ### ### ### ### 75,000 ### 206,250 - 75,000 685,000 (175,000) (22,500) (350,000) (80,000) (150,000) (750) 113,000 Chemalite, Inc. Trial Balance For Year Ended December 31, 2003 Cash 113,000 Patents 100,000 Preoperation Costs 7,500 Machinery 212,500 69,500 69,500 175,000 ### ### ### ### ### ### ### (195,000) 55,000 Assets Machinery Accum Depr 62,500 62,500 150,000 212,500 Liabilities Common Stock 375,000 ### 125,000 ### ### ### ### Patent ### ### 125,000 ### ### ### ### Total 375,000 125,000 (7,500) (23,750) Notes Payable - - 125,000 468,750 - 500,000 - ### 754,500 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) 539,375 - ### ### ### ### ### ### ### ### ### 500,000 (10,625) (10,625) 201,875 ### ### ### ### (25,000) ### 100,000 Inventory Prototypes Accounts Receivables Advertising Expenses Direct Labour and overhead e Interest expenses Depreciation Expenses Amortization Expenses Supplies Expenses Common Stock Sales Accumulated Depreciation 55,000 23,750 69,500 22,500 430,000 750 10,625 25,000 195,000 1,265,125 500,000 754,500 10,625 1,265,125 Chemalite, Inc. Income Statement For Year Ended December 31, 2003 Revenues Expenses: Legal fees Prototype Advertising Manufacturing and Salaries Interest Cost of Goods Sold Amortization Depreciation Total Expense Net Income 754,500 7,500 23,750 22,500 430,000 750 195,000 25,000 10,625 Chemalite, Inc. (715,125) 39,375 ies + Equity Revenues - Expenses (7,500) (23,750) Total 375,000 125,000 (7,500) (23,750) - (31,250) 468,750 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) (715,125) 754,500 (22,500) (350,000) (80,000) (750) (10,625) (25,000) (195,000) 539,375 754,500 754,500 General Journal Date 2003 2-Jan Explanation Debit Patents Common stock 125,000 Credit 125,000 (being exchange of patents for shares.) 31-Dec 31-Dec Depreciation Accumulated depriciation Amortization Accumulated amortization 10,625 10,625 25,000 25,000 CASH PAYMENTS JOURNAL DATE 2003 15-Jan Other POST REF Accounts ACCOUNT DEBITED DR. Preoperation costs 15-Jun Machinery 24-Jun Inventory Jul Prototypes Jul - Dec 2003 Direct costs Machinery Interest Advertising Inventory Page 1 Accounts Cash Payable CR. DR. 7500 7500 62500 62500 75000 75000 23,750 23,750.00 430,000 430,000.00 150,000 150,000.00 750 750.00 22,500 22,500.00 175,000 175,000.00 947,000 947,000 x CASH RECEIPTS JOURNAL Account credited 2-Jan common stock Jul - Dec 2003 Sales POST REF Other CR Page 1 Sales Store Sales CR. 375,000 685,000 Cash DR 375,000 685,000 Sales journal DATE ACCOUNT DEBITED jul-dec 200Auto spares POST REF Accounts sales cr Rec DR 69500.00 69500.00 Patent Date 2003 2-Jan Jul - Dec 2003 Common Stock Date 2003 2-Jan 2-Jan Pre-operation costs Date 2003 15-Jan Machinery Date 2003 15-Jun Jul - Dec 2003 Inventory Date 2003 24-Jun Jul - Dec 2003 Prototypes Date 2003 Explanation Debit Common stock Amortization 125,000 Explanation Debit Patents Cash Credit Balance 25,000 125,000 100,000 Credit Balance 125,000 125,000 375,000 500,000 Explanation Debit Cash 7,500 Explanation Debit Cash Cash 62,500 150,000 Explanation Debit Credit Balance 7,500 Credit Balance 62,500 212,500 Credit Balance Cash 75,000 75,000 Cash 175,000 250,000 Cost of goods (250,000 - 195,000 55,000 55,000) Explanation Debit Credit Balance Jul Cash 23,750 23,750 Accounts receivable Date Jul - Dec 2003 Explanation Sales Debit 69,500 Credit Balance 69,500 Advertising expense Date Jul - Dec 2003 Explanation Cash Debit 22,500 Credit Balance 22,500 Explanation Cash Debit Credit 430,000 Balance 430,000 Explanation Cash Debit 750 Credit Balance 750 Explanation Debit Accumulated depreciation10,625 Machinery Credit Balance Explanation Depreciation expense Credit 10,625 Direct labor, salaries, overheads and other expenses Date Jul - Dec 2003 Interest expense Date Jul - Dec 2003 Depreciation expense Date Jul - Dec 2003 Accumulated depreciation Machinery Date Jul - Dec 2003 10,625 Debit Balance 10,625 Amortization expense Date Jul - Dec 2003 Explanation Patent Debit 25,000 Credit Balance 25,000 Explanation Inventory Debit Credit 195,000 Balance 195,000 Supplies expense Date Jul - Dec 2003 Sales Date Jul - Dec 2003 Date 2003 2-Jan 15-Jan 15-Jun 24-Jun Jul Jul - Dec 2003 Explanation Accounts receivable Cash Cash Explanation Common stock Pre-operation costs Machinery Inventory Prototypes Sales Inventory Advertising expenses Debit Credit Balance 69,500 69,500 685,000 754,500 Debit Credit Balance 375,000 375,000 7,500 367,500 62,500 305,000 75,000 230,000 23,750 206,250 685,000 891,250 175,000 716,250 22,500 693,750 Direct labor, salaries, overheads and other expenses 430,000 263,750 Machinery Interest expense 150,000 113,750 750.00 113,000 Reasons why the company should continue to operate Chemalite Inc. should continue to operate despite the decrease of the cash reserves held by the firm duri year. From the financial statements developed, the company was able to make a profit as shown from th statement of income. For the year 2003, the company was able to make sales of the chemalite of $754,5 After deducting the operating and other expenses, the company reported an income of $39,375 after pay of the interest expense. This means that the company was profitable for the year 2003 and should theref continue in operation. The firm can take advantage of the patents and the great innovation in the produc of the chemalite to double its profits before other firms identify other alternative ways of making the pro Therefore the firm should continue operating (Lafrey & Charan, 2008). The shareholder's wealth has also been maximized. The investors of the company are usually contented company management are able to take into consideration the maximization and increasing the value of t shareholder's investment (Wheeler & Sillanpaa, 1997). From the current year, the company reported pro for the year. The net income generated from the operations of the firm improved the shareholder's value even the shareholder's equity improved as can be seen from the statement of the changes in the sharehol equity from $500,000 to $539,375 at the end of the year. This shows that the firm is progressing towards right direction and should therefore continue to operate. Every organization strives to maintain a positive cash balance such that the firm is able to meet its matu short term obligations and expenses and as well as being able to remain solvent such that the firm can h its agreements and covenants with lenders, creditors, suppliers. Chemalite has a positive cash balance at end of the year as reported in the statement of cash flows. From the financial statement, at the end of the the ending balance of cash flows was $113,000. This means that the company has sufficient cash balanc meet any short term obligations. Therefore, this implies that the liquidity and solvency of the firm is bet and should hence continue operating since the company is not facing any financial difficulties. This can demonstrated when the company was able to borrow funds from the lender and the company repaid the principal and interest due before the end of the year. Any firm with a strong financial muscles is likely to succeed in its future operations and thus Chemalite, Inc. should continue being in business. Reasons for shutting down the company The company is facing risks of poor management. Benett Alexander - the inventor of the Chemalite production idea, took over the active management of the Chemalite Inc. Company. Despite Alexander b chemical engineer, he is not an expert in the business world. He lacks the business management expertis skills to manage the business. He doesn't even understand simple book keeping, financial reporting or financial management concepts. This can translate to poor business decision making which may expose firm to severe losses. As such, the company should be shut down so as to avoid the risk of the firm runn into losses as a result of poor management. The losses may lead to loss of the shareholder's investments legal suits arising from dishonored contracts with lenders of funds and suppliers (Bateman & Snell, 201 Chemalite Inc. should therefore be closed down indefinitely till proper management with business exper deployed. Recommendation The company should continue operating. Considering the good financial performance of the company ra from the profits generated for the year 2003 and the positive net cash flows generated by the company f year, the company can grow and expand significantly if it continues its operations. The issue of manage problems can be fixed by recruiting a business knowledgeable personnel to run the company. References Bateman, T. S., & Snell, S. (2013). Management. New York, NY.: McGraw-Hill/Irwin. Lafley, A. G., & Charan, R. (2008). The game-changer: how you can drive revenue and profit growth w innovation. New York: Crown Business. Wheeler, D., & Sillanpaa, M. (1997). The stakeholder corporation: a blueprint for maximizing stakehol value. London: Pitman References Bateman, T. S., & Snell, S. (2013). Management. New York, NY.: McGraw-Hill/Irwin. Lafley, A. G., & Charan, R. (2008). The game-changer: how you can drive revenue and profit growth w innovation. New York: Crown Business. Wheeler, D., & Sillanpaa, M. (1997). The stakeholder corporation: a blueprint for maximizing stakehol value. London: Pitman ves held by the firm during the profit as shown from the the chemalite of $754,500. me of $39,375 after payment 2003 and should therefore nnovation in the production ways of making the product. ny are usually contented if the increasing the value of the he company reported profits the shareholder's value since changes in the shareholder's m is progressing towards the is able to meet its maturing such that the firm can honor positive cash balance at the tement, at the end of the year, as sufficient cash balance to vency of the firm is better ial difficulties. This can be he company repaid the ncial muscles is likely to n business. tor of the Chemalite ny. Despite Alexander being a ss management expertise and financial reporting or king which may expose the he risk of the firm running areholder's investments and (Bateman & Snell, 2013). ment with business expertise is mance of the company ranging rated by the company for the ns. The issue of management he company. /Irwin. nue and profit growth with or maximizing stakeholder /Irwin. nue and profit growth with or maximizing stakeholder