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INCOMEJanuary 1 to December 31, 2010 Salary (Kevin) $ 42,000 Bonuses $ 0 Salary (Megan) $ 19,000 Bonuses $ 0 Consulting income (Megan) $ 5,000

INCOMEJanuary 1 to December 31, 2010

Salary (Kevin)

$ 42,000

Bonuses

$ 0

Salary (Megan)

$ 19,000

Bonuses

$ 0

Consulting income (Megan)

$ 5,000

Interest[1]

$ 200

Dividends[2]

$ 975

Capital gains distributions[3]

$ 3,197

Monthly salary after deductions:

Kevin Megan

Gross salary $ 3,500 $ 2,000

Income tax withholding 637 165

CPP 155 64

EI 63 31

Net salary $ 2,645 $ 1,740

Note: Megan will receive the consulting income monthly - $417.

EXPENSES--January 1 to December 31, 2010

Cash Flow Monthly

Cash Flow Annually

Rent

$850

$10,200

Utilities (included in rent)

0

0

Telephone ($35) and cable TV ($45)

80

960

Groceries

300

3,600

Food away from home

170

2,040

Auto loan payments

403

4,836

Auto maintenance (gas, repairs, licenses, etc.)

165

1,980

Medical/dental expenses (not covered by insurance)

50

600

Clothing

225

2,700

Contributions to GRRSP

175

2,100

Auto insurance

75

900

Income tax withholding

802

9,624

CPP

219

2,628

EI

94

1,128

Appliance, furniture, and equipment purchases

1,500

Personal care

50

600

Entertainment

200

2,400

Vacations

1,000

Education expenses (books and supplies)

150

1,800

Charitable contributions

25

300

Gifts ($35/mo. Jan. through Oct., $400/mo. Nov. and Dec.)

1,150

Reinvested interest, dividends, and capital gains distributions

4,372

Education loan payments ($515 is interest paid)

189

2,268

Computer loan payments

93

1,116

Minimum payments on credit cards

275

3,300

Miscellaneous

100

1,200

[1]ING Direct accounts. Interest will be left in accounts to accumulate.

[2]Templeton Growth Fund. Dividends will be reinvested.

[3]Templeton Growth Fund. Distributions will be reinvested.

Using the income and expenditure information for 2010, complete an income and expenses statement for Megan and Kevin. Use the "cash flow" concept for this financial statement including all money inflows as income and all outflows as expenditures. Did Megan and Kevin have a cash surplus or a cash deficit in 2010? (10 marks)

QUESTIONS

1. What impact does the 2010 cash surplus (deficit) have on the following years (January 1, 2011) balance sheet? (2 marks)

2. Based on Megan and Kevin's financial statements, calculate the following ratios:

Savings ratio Liquidity ratio

Solvency ratio Debt service ratio (4 marks)

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