Scenario

You and your best friend started Mellow Life Consumables (MLC) on January 1, 2020. Your products are cannabidiol (CBD)-based oils, gummies, topical ointments, inhalants, and dried CBD flower.

MLC is an internet company you run out of the farmhouse you inherited from your grandparents. You grow your own organic hemp in the one serviceable greenhouse, and you have used your own CO₂-based hemp extraction machine, which you derived from an old still your grandfather used to make moonshine.

MLC has been in operation for one year, and you and your friend have been able to keep up with orders working part-time and reinvesting 100% of profits back into the business (retained earnings).

This table represents the business-related transactions for MLC for calendar year 2020 as well as through May 31, 2021. Assume that there are no marketable securities, accounts payable, accounts receivable, or inventory, as all are accounted for on time.

Description	Calendar Year 2020	Through May 31, 2021
Sales (all cash)	$117,487	$62,915
Hemp farming, harvesting, processing costs	$48,472	$25,957
Website maintenance	$3,600 (An additional $6,500 in set-up costs included in start-up costs)	$1,500
Marketing costs	Included in start-up costs reimbursed	$6,500
Start-up costs reimbursed to the owners	$24,475	N/A
Production expenses (fuels, packaging, shipping, etc.)	$19,973	$10,696
Partners salaries	$5,000/year each	$7,500/year each
Interest	0%	0%
Tax rate	15%	15%
Farm value	$279,500	$279,500
Hemp extraction machine original value	$2,100 (new)	$2,100 (1 year, 5 months old)
Depreciation of hemp extraction machine	N/A	20%/year (calculated yearly, one year in arrears [e.g. 2020 depreciation is included in 2021 financials)

1. Using the worksheet provided, generate a pro forma income statement, balance sheet, and statement of cash flows for the entire 2021 calendar year. You will need to estimate revenues, COGS, and SG&A expenses based on the sales through May 31 being projected to year end.

A B C 1 Mellow Life Consumables 2 Income Statements 3 For the Years 2020 and 2021 4 2021 2020 5 Sales $ 117,487 6 Cost of Goods Sold $ 68,445 7 Gross Profit 49,042 3 Depreciation $ 9 Selling & Admin. Expense $ 38,075 10 Net Operating Income S 10,967 1 Interest Expense $ 12 Earnings Before Taxes S 10,967 13 Taxes $ 1,645 14 Net Income S 9,322 15 16 Notes: 17 Tax Rate 15.00% Retained Earnings (Carries 18 over to Balance Sheet) $ 9,322 19 I | | | | | | | | | $ A B Mellow Life Consumables Balance Sheet For the Year Ended December 31, 2021 2021 2020 Assets - Cash $ 9,322 . Total Current Assets $ 9,322 Gross Fixed Assets $ 281,600 Accumulated Depreciation $ Net Plant & Equipment $ 281,600 1 Total Assets S 290,922 2 3 Liabilities & Owner's Equity 4 Accrued Expenses $ 5 5 Total Current Liabilities $ Long-term Debt $ 7 Total Liabilities $ 3 Common Stock ($1.00 par) $ Additional Paid-in-Capital $ 281,600 Retained Earnings $ 9,322 1 Total Owner's Equity $ 290,922 2 Total Liab. & Owner's Equity S 290,922 - - 3 B Mellow Life Consumables Statement of Cash Flows For the Year Ended December 31, 2021 Cash Flows from Operations Net Income Depreciation Expense Total Cash Flows from Operations Net Change in Cash Balance A B C 1 Mellow Life Consumables 2 Income Statements 3 For the Years 2020 and 2021 4 2021 2020 5 Sales $ 117,487 6 Cost of Goods Sold $ 68,445 7 Gross Profit 49,042 3 Depreciation $ 9 Selling & Admin. Expense $ 38,075 10 Net Operating Income S 10,967 1 Interest Expense $ 12 Earnings Before Taxes S 10,967 13 Taxes $ 1,645 14 Net Income S 9,322 15 16 Notes: 17 Tax Rate 15.00% Retained Earnings (Carries 18 over to Balance Sheet) $ 9,322 19 I | | | | | | | | | $ A B Mellow Life Consumables Balance Sheet For the Year Ended December 31, 2021 2021 2020 Assets - Cash $ 9,322 . Total Current Assets $ 9,322 Gross Fixed Assets $ 281,600 Accumulated Depreciation $ Net Plant & Equipment $ 281,600 1 Total Assets S 290,922 2 3 Liabilities & Owner's Equity 4 Accrued Expenses $ 5 5 Total Current Liabilities $ Long-term Debt $ 7 Total Liabilities $ 3 Common Stock ($1.00 par) $ Additional Paid-in-Capital $ 281,600 Retained Earnings $ 9,322 1 Total Owner's Equity $ 290,922 2 Total Liab. & Owner's Equity S 290,922 - - 3 B Mellow Life Consumables Statement of Cash Flows For the Year Ended December 31, 2021 Cash Flows from Operations Net Income Depreciation Expense Total Cash Flows from Operations Net Change in Cash Balance