Chemalite Case Study

Chemalite, Inc. 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. Prepare a set of financial statements for the stakeholders for the year 2003:

• statement of financial position as of December 31, 2003;
• an income statement;
• a statement of cash flows for the year ended December 31, 2003.

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?

Report 1:

1. Summary of the cash for the six months ended June 30, 2003.
2. Balance Sheet for six months ending June 30, 2003.

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 to the business. Therefore the 145,000 decrease on cash balance should be considered only as an operational expense which is necessary for any new company.

Report 2

• Statement of financial position as of December 31, 2003
• Income statement as of December 31, 2003
• tatement of cash flows for the year ended December 31, 2003.