Case Study- Chemalite, Inc.|
EMSE 6430 : Finance For Engineers|
Assume during 2003, you had been retained as a management consultant to Chemalite, Inc., specifically to Bennett Alexander, principal stock holder and CEO. He wanted your help and advice. He needed your assistance on the issues below. Your counsel and two written reports were requested: The first report covers the 1st six months of operations.
1. Include a summary of the cash for the six months ended June 30, 2003. 2. Prepare an income statement for six months ended June 30, 2003. 3. Include a statement of financial position, i.e. balance sheet, as of June 30, 2003 and a statement of cash flows for the first six months. Comment on Mr. Larson position “we’ve managed to lose $145,000 in six months and haven’t much to show for it.” The second report covers the first year of operations.
1. Prepare a set of financial statements for the stakeholders for the year 2003: a. statement of financial position as of December 31, 2003; b. an income statement; and
c. a statement of cash flows for the year ended December 31, 2003. 2. What and how would you have reported to the stockholders on the financial performance of Chemalite, Inc. for its first year, January 1, 2003 to December 31, 2003?
1. Summary of the cash for the six months ended June 30, 2003.
Date| Entry No.| Accounts and Explanation| Debit| Credit| 1/2/2003| 1| Intengible Assets (patent)| $ 125,000 | | | | Cash| $ 375,000 | |
| | Shareholder's Equity| | $ 500,000 |
| | Establishmnet of Chemalite, Inc.| | |
1/15/2003| 2| Incorporation Expenses| $ 7,500 | | | | Cash| | $ 7,500 |
| | Expenses like legal fees, charter costs...etc| | | 6/15/2003| 3| PP&E| $ 62,500 | |
| | Cash| | $ 62,500 |
| | Building the machinery| | |
6/24/2003| 4| Inventory| $ 75,000 | |
| | Cash| | $ 75,000 |
| | Purchasing Inventory| | |
2. Income statement for six months ended June 30, 2003.
Net Sales| | $ - |
Cost of Sales| | $ - |
| | |
Gross Profit| | $ - |
Operating Expenses| | $ -7,500|
| | |
Operating Profit| | $ -7,500|
| | |
Profit before Tax| | $ -7,500|
Tax| | $ - |
| | |
Net Income (Loss)| | $ -7,500|
3. Balance Sheet for six months ending June 30, 2003.
Kindly refer attached worksheet.
Statement of cash flows for six months ending June 30, 2003. Table 3:
OPERATING ACTIVITIES| | | |
Net Income| $ -7,500|
Depreciation and Amortization| $ -|
Change in Account Receivable| $ -|
Change in Inventory| $ -75,000|
Change in Current Liabilities| $ -|
Net Cash provided by Operating Activities| $ -82,500| | | | |
INVESTING ACTIVITIES| | | |
Purchase of equipment| $ -62,500|
Net Cash used by Investing Activities| $ -62,500|
| | | |
FINANCING ACTIVITIES| | | |
Net Cash provided by Financing Activities| $ -| | | | |
CASH and CASH EQUIVALENTS| | |
Cash balance on Jan 1, 2003| $ 375,000|
| | | |
End of Period| $ 230,000|
Mr Larson’s view of the cash outflow is that he sees $145000 as expenses however; it is clear from the income statement which is presented above that the company only lost $7,500 during these six months. These are incorporation charges which are necessary for any growing company. Investment thus made will in return generate cash and raise more capital. The pre-operational expenses should be realized as investments...