(Problems with cost, LO 3) In June 2004 Jolicure Inc. (Jolicure) and Horsefly Inc.

(Horsefly) each began operations. Each company was formed with an initial capital contribution of $100,000. During the year ended May 31, 2005, each company had revenue of $225,000 and total expenses of $175,000. In addition, during the first year of operations each company purchased 1,000 shares of Nictaux Ltd.

(Nictaux), a public company, for $12 per share. In May 2005 Horsefly sold its shares in Nictaux for $20 per share and immediately repurchased them at the same price.

Jolicure did not sell its shares during fiscal 2005. On May 31, 2005 each company had total assets (excluding the shares in Nictaux) of $168,000 and total liabilities of

$30,000.

Required:

a. Prepare summarized balance sheets for Jolicure and Horsefly as of May 31, 2005.

b. Prepare summarized income statements for Jolicure and Horsefly for the year ended May 31, 2005.

¢. Which company performed better in fiscal 2005?

d. Which company was in a better financial position on May 31, 2005?

e. Why do you think Horsefly sold and repurchased the shares in Nictaux? Do you think that this was a wise transaction to enter into? Explain.