with this financial statements, I need to write a memo evaluating the risk of CMC and discussing the pros and cons of debt versus equity financing

Accounting in Action: CM Corporation (CMC) CM Corporation (CMC) was founded in 2000 by Eric Conner and Phil Martin. The company designs, installs, and services security systems for high-tech companies. The founders, who describe themselves as "entrepreneurial geeks, " met in a computer lab when they were teenagers and found they had common interests in working on security systems for critical industries. In October 2021, CMC hired you as an accounting intern. Lately Conner and Martin have been working with "radio frequency identifieation" (RFID) technology. They have developed a detailed system designed to track inventory items using RFID tags embedded invisibly in products. This technology has numerous inventory applications in multiple industries. One of the most basic applications is tracking manufacturing components; if tagged components "go walking" (if employees attempt to take them), companiescan easily track and find them. Conner and Martin have sold their system to several high-tech companies in the area. These companies have a number of government contracts that require extensive security systems to protect sensitive data from infiltration by terrorists and others. To date, CMC's cash flow from sales and services has adequately funded its operations. CMC anticipates growth potential for its products. As a result, it is exploring external sources of finance. To familiarize you with the company's operations, Conner and Martin have provided an unadjusted trial balance from the end of 2021 on an Excel spreadshcet. They ask you to prepare the financial statements, i.s, the income statement, the balance sheet, the statement of cashflows and the statement of retained eamings for fiscal year ending on Dee 31,2021. You are also provided the following information for adjustments prior to closing the books. 1. Wages eamed by employees during December and to be paid in January are $33,875; associated payroll taxes on these wages are $2,710. 2. On July 1 , a client paid CMC $205,720 in advance for a year of consulting services. 3. You discover that a product sale was made and recorded on December 28 for $128,600; the product had not yet been shipped. The cost of the product was $68,742. Assume A/R was debited when the sale was recorded on December 28 , 4. Bad debt expense bas been calculated to be $17,508 but has not yet been recorded. 5. The Prepaid Expense account has a balance of $22,774. This balance inciudes $11,200 for a two-year insurance policy purchased on Jamuary 1,2021. 6. Deprecintion expense for the year is $82,620. 7. Interest expense acerued on its long-term liabilities is $7,765. 8. On December 15, CMC declared a dividend of 5110,000 , to be paid on January 15 , 2022 9. Income tax expense is $201,109. Liabilities and Stockhoiders' Equity 2 Current liabilities Stockholders' equity Contributed capital Common stock, $2 par value (4,000,000 shares authorized), 460,000 shares issued of which 440,000 shares \begin{tabular}{crr} are outstanding & 920,000 & 920,000 \\ \hline Paid-in capital common stock & 105,000 & 105,000 \\ \hline Total contributed capital & 1,025,000 & 1,025,000 \\ \hline \end{tabular} AccumulatedothercomprehensiveincomeRotainedearnings0972,4150539,069 CM Corporation Statement of Retained Earnings For the Years Ended December 31, 2021 December 31, 2020 Beginning balance $539,069 ($116,823) Net income (loss) 433,346 Dividends Ending balance $972,415 $539,069 30 31 Cash flows from investing activilies 32 (Purchase) of foced assets (Purchase) of intangbles (Purchase) of investments 35 Net cash (used) provided by investing activities 36 37. Cash flows from financing activities Procoeds from bong-tom labilaies Dividends paid 40 Not cash (used) provided by financing activities 41 42 Nolincrease (decrease) in cash and cash equivalonts 43 44 Cash and cash equivalents at beginning of ponod 45 46 Cash and cash equivalents at end of period \begin{tabular}{|r|r|} \hline 460,087 \\ 455,200 & 274,300 \\ \hline40,036 & 0 \\ \hline955,323 \\ \hline & 12,650 \\ \hline 309,975 & 286,950 \\ \hline 17,375 \\ \hline 292,100 \\ \hline 48,333 & 0 \\ \hline 120,670 & 32,000 \\ \hline & 32,000 \\ \hline & 235,035 \\ \hline & \\ \hline & 114,365 \\ \hline \end{tabular} Accounting in Action: CM Corporation (CMC) CM Corporation (CMC) was founded in 2000 by Eric Conner and Phil Martin. The company designs, installs, and services security systems for high-tech companies. The founders, who describe themselves as "entrepreneurial geeks, " met in a computer lab when they were teenagers and found they had common interests in working on security systems for critical industries. In October 2021, CMC hired you as an accounting intern. Lately Conner and Martin have been working with "radio frequency identifieation" (RFID) technology. They have developed a detailed system designed to track inventory items using RFID tags embedded invisibly in products. This technology has numerous inventory applications in multiple industries. One of the most basic applications is tracking manufacturing components; if tagged components "go walking" (if employees attempt to take them), companiescan easily track and find them. Conner and Martin have sold their system to several high-tech companies in the area. These companies have a number of government contracts that require extensive security systems to protect sensitive data from infiltration by terrorists and others. To date, CMC's cash flow from sales and services has adequately funded its operations. CMC anticipates growth potential for its products. As a result, it is exploring external sources of finance. To familiarize you with the company's operations, Conner and Martin have provided an unadjusted trial balance from the end of 2021 on an Excel spreadshcet. They ask you to prepare the financial statements, i.s, the income statement, the balance sheet, the statement of cashflows and the statement of retained eamings for fiscal year ending on Dee 31,2021. You are also provided the following information for adjustments prior to closing the books. 1. Wages eamed by employees during December and to be paid in January are $33,875; associated payroll taxes on these wages are $2,710. 2. On July 1 , a client paid CMC $205,720 in advance for a year of consulting services. 3. You discover that a product sale was made and recorded on December 28 for $128,600; the product had not yet been shipped. The cost of the product was $68,742. Assume A/R was debited when the sale was recorded on December 28 , 4. Bad debt expense bas been calculated to be $17,508 but has not yet been recorded. 5. The Prepaid Expense account has a balance of $22,774. This balance inciudes $11,200 for a two-year insurance policy purchased on Jamuary 1,2021. 6. Deprecintion expense for the year is $82,620. 7. Interest expense acerued on its long-term liabilities is $7,765. 8. On December 15, CMC declared a dividend of 5110,000 , to be paid on January 15 , 2022 9. Income tax expense is $201,109. Liabilities and Stockhoiders' Equity 2 Current liabilities Stockholders' equity Contributed capital Common stock, $2 par value (4,000,000 shares authorized), 460,000 shares issued of which 440,000 shares \begin{tabular}{crr} are outstanding & 920,000 & 920,000 \\ \hline Paid-in capital common stock & 105,000 & 105,000 \\ \hline Total contributed capital & 1,025,000 & 1,025,000 \\ \hline \end{tabular} AccumulatedothercomprehensiveincomeRotainedearnings0972,4150539,069 CM Corporation Statement of Retained Earnings For the Years Ended December 31, 2021 December 31, 2020 Beginning balance $539,069 ($116,823) Net income (loss) 433,346 Dividends Ending balance $972,415 $539,069 30 31 Cash flows from investing activilies 32 (Purchase) of foced assets (Purchase) of intangbles (Purchase) of investments 35 Net cash (used) provided by investing activities 36 37. Cash flows from financing activities Procoeds from bong-tom labilaies Dividends paid 40 Not cash (used) provided by financing activities 41 42 Nolincrease (decrease) in cash and cash equivalonts 43 44 Cash and cash equivalents at beginning of ponod 45 46 Cash and cash equivalents at end of period \begin{tabular}{|r|r|} \hline 460,087 \\ 455,200 & 274,300 \\ \hline40,036 & 0 \\ \hline955,323 \\ \hline & 12,650 \\ \hline 309,975 & 286,950 \\ \hline 17,375 \\ \hline 292,100 \\ \hline 48,333 & 0 \\ \hline 120,670 & 32,000 \\ \hline & 32,000 \\ \hline & 235,035 \\ \hline & \\ \hline & 114,365 \\ \hline \end{tabular}