Assume that Jones has been working for you for five years. He has had an excellent work history and has received generous pay raises in response. The raises have been so generous that Jones is quite overpaid for the job he is required to perform. Unfortunately, he is not qualified to take on other, more responsible jobs available within the company. A recent job applicant is willing to accept a salary $5,000 per year less than the amount currently being paid to Jones. The applicant is well qualified to take over Jones's duties and has a very positive attitude. The following financial statements were reported by your company at the close of its most recent accounting period.

Required
a. Reconstruct the financial statements, assuming that Jones was replaced at the beginning of the most recent accounting period. Both Jones and his replacement are paid in cash. No other changes are to be considered.
b. Would a public or private accountant be more likely to face this type ofdilemma?

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Financial Statements Income Statement Revenue Expense Net Income $57,000 $12,000 Statemont of Changes in Stockholders Equity Beginning Common Stock Plus: Stock Issued $20,000 5,000 Ending Common Stock Beginning Retained Earnings Net Income Dividends $25,000 50,000 12000 (2,000 Ending Retained Earnings Total Stockholders' Equity $85,000 Balance Sheet Assets Cash Stockholders' Equity Common Stock $25,000 Retained Earnings Total Stockholders' Equity Statement ef Cash Flows Operating Activities $57,000 (45,000 Inflow from Customers Outflow for Expenses Net Inflow from Operating Activities Investing Activities Financing Activities $12,000 Inflow from Stock Issue 5,000 (2000) Outflow for Dividends Net inflow from Financing Activities Net Change in Cash Plus: Beginning Cash Balance Ending Cash Balance 3,000 15,000 $85,000