In January 2010, Carmen Diaz, a recent arrival from Cuba decided to open a small ribbon shop in the Coconut Grove section of Kuala Lumpur, Malaysia. During the month, she puts together a simple business plan, which she took to several relatives whom she believed would be interested in helping her finance the new venture. Two of her cousins agreed to loan the business $10,000 for one year at 6% interest rate. For her part, Carmen agreed to invest $1,000 in the equity of the business. On March 1, 2010 with the help of an uncle who practiced law, Carmen formally incorporated her business, which she named "Buttons and Needles". Normally, the uncle would have charged a fee of $600 for handling the legal aspects of a simple incorporation, but since Carmen was a family, he waived the fee. As soon as the new business was incorporated, Carmen opened a bank account and deposited the cousins' $10,000 loan and her $1.000 equity contribution. The same day, she signed an agreement to rent store space for $600 per month, paid on the last day of the month. The agreement was for an 18 month period beginning April 1". The agreement called for a prepayment of the last two months' rent, which Carmen paid out of the company bank account at the signing. Over the next few weeks, Carmen was actively engaged in getting ready to open the store for business on April 1. Fortunately for Carmen, the previous tenant had left counters and display furniture that Carmen could use at no cost to her. In addition, the landlord agreed to repaint the store at no cost, using colours of Carmen's choice. For her part, Carmen ordered, received and paid for the store's opening inventory of ribbons and ribbon accessories; acquired for free a simple cash register with credit card processing company after paying a refundable deposit; signed service agreements with the local phone and utility companies, ordered and paid for some store supplies, and placed and paid for advertising announcing the store opening in the April 2 edition of local paper. In addition, she bought and paid for a used desktop computer with basic business software already installed to keep track of her business transactions and correspondence. On March 31, before opening for business the next day, Carmen reviewed the activity in the company's bank account. Following the deposit of the loans and equity contribution, the following payments were made. 1. Last 2 months' rent RM1,200 2. Opening merchandise inventory RM3,300 3. Cash register deposit RM250 4. Store supplies RM100 3. April 2 edition advertising RM150 RM150 5. April 2 edition advertising 6. Used computer purchase RM2,000 After reviewing her cash transaction records, Carmen prepared a list of Buttons and Needles assets and capital (see Exhibit 1). Exhibit 1 Assets Sources of Capital RM RM Cash 4,000 Inventory 3,300 Supplies 100 Prepaid rent 1,200 Prepaid advertising 150 Computer/software 2,000 Cousin's loan 10,000 Cash register deposit 250 Carmen's equity 1,000 11,000 11,000 iii. The free legal work performed by her uncle and the free cash register provided by the local credit card charge processor. iii. Carmen had not paid herself a salary or dividends during the four months of operations. If cash was available, she anticipated sometime in July she would pay herself some compensation for the four months spent working in the business. Before starting her business, Carmen had worked RM1,300 a month as a cashier in a local grocery store. Questions i. Report on the profitability (or loss) of Buttons and Needles three months operations through 30 June. Explain on the decline of cash in bank during the three month operating period. ii. Prepare a report on the financial condition of the business on June 30, 2010. iii. Provide your opinons on Carmen's first three months of operation. Is it consider "successful