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Chemalite - A - en - B

The document provides financial statements for Chemalite for the first and second half of 2003. For the first half: - Revenues were $0 and expenses were $145,000, resulting in a net loss of $145,000. - Cash decreased from $375,000 to $230,000. For the second half: - Revenues were $754,500 and net income was $39,375. - Cash decreased from $230,000 to $113,000. The business incurred pre-production expenses in the first half and became profitable after starting production in the second half. However, cash balances decreased over the full year period.

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Aimane Beggar
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552 views12 pages

Chemalite - A - en - B

The document provides financial statements for Chemalite for the first and second half of 2003. For the first half: - Revenues were $0 and expenses were $145,000, resulting in a net loss of $145,000. - Cash decreased from $375,000 to $230,000. For the second half: - Revenues were $754,500 and net income was $39,375. - Cash decreased from $230,000 to $113,000. The business incurred pre-production expenses in the first half and became profitable after starting production in the second half. However, cash balances decreased over the full year period.

Uploaded by

Aimane Beggar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chemalite (A)

Chemalite (B)
Templates cases
Chemalite Case (A)

QUESTIONS:
1. Prepare the post-production Financial Statements
(Period Jan 2 – June 30, 2003)
- Opening Balance
- Income Statement
- Ending Balance

2. Prepare the second half year production Financial Statements


(Period July 1 – December 31, 2003)
- Income Statement
- Ending Balance

3. Comments on the business based on above figures


Chemalite
Opening Balance 2 Jan. 2003

Assets Liabilities & Owner’s Equity

Cash 375,000

Patent 125,000 Common Stock 500,000


500,000 500,000

Note: Follow the Cash


Chemalite
Income Statement 1H2003

Revenues $0

Expenses $145,000

Net Income -$145,000


In this (pre-production) period $145,000 is paid for:
- $7,500 legal fees,
- $62,500 building the machine
- $75,000 inventory
These should be treated as expenses (not cash out)

Note: Accrual Principle: Matching Revenues with Costs


Chemalite
Ending Balance June 30, 2003

Assets Liabilities & Owner’s Equity

Cash 230,000
Capitalized Legal 7,500
Inventory 75,000
Fixed Assets 62,500 Common Stock 500,000
Patent 125,000 Retained Earnings 0
500,000 500,000

Note: Cash = 375,000 – 145,000 = 230,000


Chemalite
Statement of Cash Flows 1H2003
Cash Flows from:
Operations:
- Purchase inventory 75,000
Investing:
- Purchase machinery 62,500
- Legal Costs 7,500

Financing:
- Sale Common Stock 375,000
Increase (Decrease) in Cash -145,000
Cash Begin 375,000
Cash Ending 230,000
Chemalite
Income Statement 2H2003
Revenues 754,500
Expenses:
- Legal Expenses 7,500
- Advertising 22,500
- Administration 80,000
-Manuf. Costs 350,000
-Raw Materials * 195,000
- R&D 23,750
- Interest 750
-Depreciation FA ** 10,625
- Amortization P *** 25,000
Net Income 39,375
* Beginning (75,000) + Purchases (175,000) – Ending (55,000) = 195,000
** (62,500+150,000)/10 yrs x 0,5 yr = 10,625*** 125,000/Econ. life = 5 yrs = 25,000
Chemalite
Ending Balance Dec. 31, 2003

Assets Liabilities & Owner’s Equity

Cash 113,000
Receivables 69,500
Inventory 55,000
Fixed Assets (net) 201,875 Common Stock 500,000
Patent 100,000 Retained Earnings 46,875
539,375 539,375

Note: Fixed Assets = (62,500+150,000) – 10,625= 201,875


Chemalite
Statement of Cash Flows 2H2003
Cash Flows from: Indirect Method
Operations: - to Retained
Net Income 39,575 Earnings
- Depr. & Amort 35,625
- Increase in Receivables 69,500
- Decrease in Inventory 195,000
Investing 150,000
Financing 750
Increase (Decrease) in Cash 117,000
Cash Begin 230,000
Cash Ending 113,000
Note: for Balance Sheet 31 Dec. 1991 See Chemalite(B) case Exh. 1
Chemalite (B) Statement of Cash Flow – Indirect Method
Begin and End columns to calculate only for Balance sheet accounts,
not Inocme Stattements accounts (like Net Income, Depreciation)
Chemalite (B)
Gain on Sales of Fixed Assets (Machines)

Included in Cash Flow In from Investing


Cash **
Machines (historical value) *
Accum. Depreciation (jun – jul)
Book value
Gain on Sale of Machines
(Incl. in Income Statement Net Income,
but it is Not a Cash Flow item, so take out)

* .............. + 1............. = ............. ** = ‘market value’


Chemalite (B)

Buy PPE (land 250 and building 600) for $850,000


50% paid = $425,000
Plus new machine = $520,000
Total Investing = $1,370,000

PPE Property Plant and Equipement) = $212,500


- New machine $520,000
- PPE $850,000

Begin $212,500 (sold old machine with a gain of $215,500)


End ($1,370,000 + $215,500)

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