Q1 Clearly articulate the purpose of the income statement, balance sheet, and cash flow. Include an explanation about the relationships between the statements. Be sure to include who uses the statements, where the can be obtained, any key issues related to the statements. If you have any specific examples please include.

Q2 Given the following information create an income statement and determine the cash impact to the business. Comment on both, what is the relationship or the overall observation you have? Can you operate a business with a negative net income? Can you operate your business with negative cash? Explain your answer.

In January 20×2 Mike opened a restaurant as a sole proprietorship and recorded the following transactions during her first month in business:
1. Purchased $100,000 of fixed assets, putting 10% down and borrowing the rest.
2. Served 1000 tables with an average price of $100 each. Half of the sales were paid for in cash, the remaining he allowed to have on credit. (none of which had been collected as of the end of the month)
3. Recorded cost of services provided of $21,000 related to above.
4. Purchased $30,000 worth of inventory and paid cash.
5. Incurred other expenses (including the interest from the loan) of $10,000, all of which were paid in cash.
6. Mike’s tax rate is 40% (Taxes will be paid in the subsequent period)

Q3 Given the following information, what does the balance sheet look like? What is shareholders’ equity? What is net working capital?

Current assets $300

Net Fixed assets $500

Short term debt 170

Long term debt 200

Q4 If a company purchases new equipment for $750,000 and its useful life is 5 years, calculate the annual depreciation using the straight-line method.

Explain why depreciation expense is different than other expenses – for example payroll expense. What is its effect on cash flows?