Question 1
Chemalite, Inc.
Summary of Transactions
Jan. 2, 2003 through June 30, 2003
Date Cash Patent Machinery & Equipment Inventory Owner's Equity
Jan. 2 +125,000 +125,000 : Common Stock
Jan. 2 +375,000 +375,000 : Common Stock
Jan. 15 -7,500 -7,500 : Incorporation Expenses
Jun. 15 -62,500 +62,500 : Building the Machinery
Jun. 24 -75,000 +75,000 : Purchase of Plastics and Chemicals
Total 230,000 62,500 75,000 367,500
Question 2
Chemalite, Inc.
Income Statement
Jan. 2, 2003 through June 30, 2003
Revenue
Fees earned $0
Expenses
Operating expenses:
Incorporation expenses -7500
Depreciation expense (patent) -12,500
Total operating expenses -20,000
Net income -20,000
The company did incur a loss as Mr. Larson suggested. However, the loss is not $145,000; the loss, which is due to incorporation expenses and the patent depreciation expense, is only $20,000. Mr. Larson did not recognize the building of the machinery and the purchase of the inventory as investments.
Question 3
a.
Chemalite, Inc.
Balance Sheet
Jan. 2, 2003 through June 30, 2003
Assets
Cash $230,000
Equipment & Machinery $62,500
Inventory $75,000
Patent $125,000
Less Depreciation -12,500
Net Patent $112,500
Total assets $480,000
Liabilities $0
Stockholder¡¦s equity
Common stock $500,000
Retained earnings -20,000
Total liabilities and stockholder¡¦s equity ...