Ken Kennett Building Services is a local business operating in the housing industry. Ken Kennett has no formal accounting system and does not use financial statements for decision making. However, he is negotiating a contract with a supplier of building materials who wants to see his financial statements to ensure that Ken can meet his payments each month. Ken has asked you to prepare financial statements. Based on his last tax return and the content of his shoebox (where he keeps his invoices and receipts) for this year, you have recorded the following items:

Cash in the shoebox (with the receipts and invoices) $500

Cash in the bank account 3,800

Building services provided 550,000

Amounts owed by customers 80,000

Wages paid to employees 150,000

Wages owed to the employees 3,500

Equipment 68,000

Building supplies used 310,000

Building supplies on hand 18,000

Amounts owed to suppliers 30,000

Motor vehicle 32,000

Motor vehicle expenses 5,600

Electricity and telephone expenses 4,000

Cash used by Ken for personal expenditure 5,700

REQUIRED:

1. Using the information above, prepare a statement of financial performance (income statement) and a statement of financial position (balance sheet) forKen Kennett Building Services. ( 6 Marks)
2. How would the financial statements you provide help the supplier of building materials decide whether or not to trade with Ken? What parts of the financial statements would be positive indicators that Ken Kennett Building Services would be able to pay for supplies on time and what items may cause some concern for the suppliers? (4 Marks)