Jim and Marie Sunderland have held jobs in a variety of businesses since they have been together. Jim has been a sales representative manager for a pharmaceutical company. Marie has been a legal assistant at a law firm. They both wanted to always own their own business. They have decided to open a jewelry store here in Virginia Beach, Virginia. They will call the jewelry store Heavenly Hocks Enterprises $($HHE$).$ They have been saving up for years to do this and want to branch out on their own now. Here is financial information on the jewelry store as they want your help because you just finished your MBA.

On January $1,$ HHE issued no par common stock to the Sunderland$$s for $$525,000.$ Early in January, Jim signed a one year lease and secured a commercial space for $$18,000$ for HHE. Then the business purchased store fixtures for $$51,000.$ Then the business purchased a vast amount of different types of jewelry. They bought watches, stones, necklaces, bracelets, etc. The total inventory costs was $$240,000.$ Sales were pretty good so a few months later the business purchased additional inventory on account of $$243,000.$ Before the year ended HRE paid $$153,000$ of this accounts payable. During the year, HHE sold $2,800$ pieces of various jewelry and the average sale was $$325.$ Before the year ended the company collected on $95\%$ of this sales amount. The costs of goods sold for the year totaled $$290,000$ and the year$-$end inventory amount was $$193,000.$

The HHE employed three employees and did not pay any overtime throughout the year. The total payroll for the year was $$82,000$ but HHE still owes the employees $$5,000$ at year end. At the end of the year, HHE has paid in income tax of $$17,000$ so there is no reason to have an income tax payable account. The HHE believed they had a rewarding year as they started their own jewelry business. The HHE sacrificed a lot during this first year but did need some money to live on so they took dividends of $$38,000$ from HHE. The HHE do not know that much about accounting so they asked a friend for advice on how to account for the use of the store fixtures. They want the store fixtures depreciated over $5$ years using the straight$-$line depreciation method with zero residual value.

Please answer the following questions among your group members and submit one group answer by the due date.

$1.$ What is the purpose of the statement of cash flows?

$2.$ Prepare the income statement for the year ended.

$3.$ Prepare the statement of retained earnings.

$4.$ Prepare the balance sheet for the company at year end.

$5.$ Prepare the statement of cash flows at year end using the indirect method.

$6.$ Analyze the three financial statements from your answer, and assess the company$$s performance. You must use ratios and the cash flows statement to back up your answer.

$7.$ Write a brief memo to Jim and Marie $($memo s$/$b $6$ to $10$ sentences$)$ explaining the purpose of the statement of cash flows $($answer #$1)$ and also share your analysis of the business $($#$6).$ Also, should they continue the jewelry business or go back to their other career jobs?

$8.$ Ethics question$-$You are part of management of a company that is having a tough year. The company$$s Board of Directors has decided the company needs a loan. Management knows that the bank will scrutinize the cash flows statement especially the operating activities. Management has suggested moving some outstanding accounts receivables of slow paying clients from current assets to long term assets. This move will increase the net cash provided by operations and possibly help the company get the loan. Are the actions of management ethical or unethical? Again this is not a just a yes or no question. Please back up your response and use scripture.