Remember to show all work for the problem sets below.

The work may be

submitted either in a Microsoft Word or Excel document. The answers must
be legible.

Income statement preparation

On December 31, 2009, Cathy Chen, a self-employed certified public accountant (CPA),
completed her first full year in business. During the year, she billed $360,000 for her
accounting services. She had two employees: a bookkeeper and a clerical assistant. In
addition to her monthly
salary of $8,000, Ms. Chen paid annual salaries of $48,000 and $36,000 to the
bookkeeper and the clerical assistant, respectively. Employment taxes and benefit costs
for Ms. Chen and her employees totaled $34,600 for the year.
Expenses for office supplies, including postage, totaled $10,400 for the year. In
addition, Ms. Chen spent $17,000 during the year on tax-deductible travel and
entertainment associated with client visits and new business development.
Lease payments for the office space rented (a tax-deductible expense) were $2,700 per
month. Depreciation expense on the office furniture and fixtures was $15,600 for the
year. During the year, Ms. Chen paid interest of $15,000 on the $120,000borrowed to
start the business. She paid an average tax rate of 30% during 2009.
a. Prepare an income statement for Cathy Chen, CPA, for the year ended December
31, 2009.

Impact of net income on a firms balance sheet

Conrad Air, Inc., reported net income of $1,365,000 for the year ended December 31,
2009. Show the effect of these funds on the firms balance sheet for the previous year
(below) in each
of the scenarios following the balance sheet.

Conrad Air, Inc.

Balance Sheet (as of December 31, 2009)
Assets

Liabilities and Stockholders Equity

Cash
$ 120,000
Marketable securities 35,000
Accounts receivable 45,000
Inventories
130,000

Accounts payable $70,000

Short-term notes
55,000
Current liabilities $ 125,000
Long-term debt
55,000

Current assets

Total liabilities

330,000

Equipment $2,970,000
Buildings
1,600,000
Fixed assets 4,457,000
Total assets $4,900,000

2,825,000

Common stock
$ 500,000
Retained earnings 1,575,000
Stockholders equity 2,075,000
Total liabilities and equity $4,900,000

a. Conrad paid no dividends during the year and invested the funds in marketable
securities.
b. Conrad paid dividends totaling $500,000 and used the balance of the net income
to retire (pay off) long-term debt.
c. Conrad paid dividends totaling $500,000 and invested the balance of the net
income in building a new hangar.
d. Conrad paid out all $1,365,000 as dividends to its stockholders.

Balance sheet preparation

Adam and Arin Adams have collected their personal
asset and liability information and have asked you to put together a balance sheet as
of December 31, 2009. The following information is received from the Adams family.

Cash $ 300
Checking 3,000
Savings 1,200
IBM stock 2,000
Auto loan 8,000
Mortgage 100,000
Medical bills payable 250
Utility bills payable 150
Real estate 150,000

Retirement funds, IRA $ 2,000

2008 Sebring 15,000
2007 Jeep 8,000
Money market funds 1,200
Jewelry & artwork 3,000
Net worth 76,500
Household furnishings 4,200
Credit card balance 2,000
Personal loan 3,000

a. Create a personal balance sheet as of December 31, 2009. It should be similar to

a corporate balance sheet.
b. What must the total assets of the Adams family be equal to by December 31,
2009?
c. What was their net working capital (NWC) for the year? (Hint: NWC is the
difference between total liquid assets and total current liabilities.)