1. A Balance Sheet Assets Current assets: Cash . . . . . . . ..$7,000,000
A/R (net) $5,870,000
Inventory $2,170,000
PPE…………..$2,440,000
Less: Acc. Dep... ($4,000)
Total assets . . $32,000,000
Source: CRookEd Partners
123 Far Flung Ave.
Fargo, ND
Liabilities and Owners’ Equity
Current liabilities:
Short-term debt ……$22
Accounts payable …$5,000
Other accrued liabilities $1,000
Long-term debt $50,000
Total liabilities $117,000
Owners’ equity $31,883,000
Total liabilities and
owners’ equity $32,000,000
DECEMBER 31, 2005

2. Income or "P&L" Statement
Net sales $11,200,000
Cost of goods sold ($850,000)
Gross profit $350,000
Selling, general, and administrative expenses ($311,000)
Income from operations $39,000
Interest expense ($9,000)
Income before taxes $30,000
Income taxes ($12,000)
Net income $6,808,000
Net income per share of common stock outstanding $ 6.80
DECEMBER 31, 2005

3. Income Statement Net sales Cost of goods sold Gross profit
represent the amount of sales of merchandise to customers, less the amount of sales originally recorded but canceled because the merchandise was subsequently returned by customers for one reason or another. The sales amount is frequently called sales revenue, or just revenue. Revenue results from selling a product or service to a customer.
Cost of goods sold
represents the total cost of merchandise removed from inventory and delivered to customers as a result of sales. This is shown as a separate expense because of its significance, and because of the desire to show gross profit as a separate item.
Gross profit
is the difference between net sales and cost of goods sold and represents the seller’s maximum amount of “cushion” from which all other expenses of operating the business must be met before it is possible to have net income.
Selling, general, and administrative expenses
represent the operating expenses of the entity. In some income statements, these expenses will not be lumped together but will be reported separately for each of several operating expense categories, such as wages, advertising, and depreciation.
DECEMBER 31, 2005

4. Income Statement Income from operations
represents one of the most important measures of the firm’s activities. Income from operations can be related to the assets available to the firm to obtain a useful measure of management’s performance.
Interest expense
represents the cost of using borrowed funds. This item is reported separately because it is a function of how assets are financed, not how assets are used.
Income taxes
is shown after all of the other income statement items have been reported because income taxes are a function of the firm’s income before taxes.
Net Income
Money owed to the instructor of this class for teaching you all of this rubbish!
Net income per share of common stock outstanding
is reported as a separate item at the bottom of the income statement because of its significance in evaluating the market value of a share of common stock.
DECEMBER 31, 2005

5. Change In O/E Paid-In Capital:
Beginning balance $ –0–
Common stock, par value, $10; 50,000 shares authorized,
10,000 shares issued and outstanding $100,000
Additional paid-in capital $24,975,000
Balance, 31 December, 20XX $25,075,000
Retained Earnings:
Beginning balance $ –0–
Net income for the year $6,800,000
Less: Cash dividends of $.50 per share ($5,000)
Balance, 31 December 20XX $13,000
Total owners’ equity $31,883,000
DECEMBER 31, 2005

6. Cash Flow Statement DECEMBER 31, 2005
Cash Flows from Operating Activities:
Net income $6,808,000
Add (deduct) items not affecting cash:
Depreciation expense …$4,000
Increase in accounts receivable ($80,000)
Increase in merchandise inventory ($170,000)
Increase in current liabilities $67,000
Net cash used by operating activities $(161,000)
Cash Flows from Investing Activities:
Cash paid for equipment ($40,000)
Cash Flows from Financing Activities:
Cash received from issue of long-term debt $50,000
Cash received from sale of common stock $190,000
Payment of cash dividend on common stock ($5,000)
Net cash provided by financing activities $235,000
Net increase in cash for the year $7,000,000
DECEMBER 31, 2005

7. Cash Flow Statement Explanations
Operating Activities:
Depreciation expense is added back to net income because, even though it was deducted as an expense in determining net income, depreciation expense did not require the use of cash.
The increase in accounts receivable is deducted because this reflects sales revenues, included in net income, that have not yet been collected in cash.
The increase in merchandise inventory is deducted because cash was spent to acquire the increase in inventory.
The increase in current liabilities is added because cash has not yet been paid for the products and services that have been received during the current fiscal period.
Cash flows from Investing Activities show the cash used to purchase long-lived assets.
Cash flows from Financing Activities include amounts raised from the sale of long term debt and common stock, and dividends paid on common stock.
DECEMBER 31, 2005