Warm Weather Inc.

Comparative Balance Sheets

December 31, 2010 and 2009

2010 2009

Assets

Cash $ 69,900 $ 12,500

Accounts Receivable (net) 22,000 25,000

Inventory 44,400 50,400

Prepaid Expenses 5,200 7,600

Property, Plant and Equipment 55,000 60,000

Accumulated Depreciation, PPE (9,000 ) (5,000 )

Total Assets $187,500 $150,500

Liabilities and Stockholders Equity

Accounts Payable $ 15,000 $ 18,000

Income Taxes Payable 3,200 3,800

Notes Payable (Long-Term) 37,000 35,000

Common Stock -- $5 par value 115,000 90,000

Retained Earnings 17,300 3,700

Total Liabilities and Stockholders Equity $187,500 $150,500

Warm Weather Inc.

Income Statement

For the Year Ended December 31, 2010

Sales $255,000

Cost of Goods Sold 178,000

Gross Margin $ 77,000

Operating Expenses 47,000

Operating Income $ 30,000

Interest Expense 2,800

Income Before Income Taxes $ 27,200

Income Taxes 9,300

Net Income $ 17,900

Additional information: During 2010, the following were included in Warm Weather Inc.s transactions:

a. issued $22,000 note payable for purchase of equipment;

b. sold equipment that cost $27,000 with accumulated depreciation of $15,300 at carrying value;

c. recorded depreciation of $19,300;

d. repaid a note in the amount of $20,000;

e. issued $25,000 of common stock at par value;

f. declared and paid dividends of $4,300;

* Create statement of Cash Flows both Direct and Indirect methods