Assume that Kevin 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 Kevin 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 Kevin. The applicant is well qualified to take over Kevin€™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 (shown below), assuming that Kevin was replaced at the beginning of the most recent accounting period. Both Kevin and his replacement are paid in cash. No other changes are to be considered.
b. Discuss the short- and long-term ramifications of replacing Kevin. There are no right answers.

However, assume that you are required to make a decision.

Use your judgment and common sense to support yourchoice.

Financial Statements Income Statement Revenue Expense $57,000 (45,000) $12,000 Net income Statement of Changes in Stockholders' Equity Beginning common stock Plus: stock issued Ending common stock Beginning retained earnings Net income Dividends Ending retained earnings $ 20,000 5,000 $25,000 50,000 12,000 (2,000) 60,000 Total stockholders' equity Balance Sheet Assets $85,000 Cash $85,000 Equity Common stock $25,000 60,000 $85,000 Retained earnings Total stockholders' equity Statement of Cash Flows Operating activities Inflow from customers $57,000 (45,000 Outflow to suppliers expenses Net inflow from operations Investing activities Financing activities $12,000 5,000 12,000 Inflow from stock issue Outflow for dividends Net inflow from financing activities Net change in cash Plus: beginning cash balance 3,000 15,000 70,000 $85,000 Ending cash balance Financial Statements Income Statement Revenue Expense $57,000 (45,000) $ 12,000 Net income Statement of Cash Flows Operating activities Inflow from customers $57,000 45,000 Outflow to suppliers expenses Net inflow from operations Investing activities Financing activities $12,000 Inflow from stock issue 5,000 2,000) Outflow for dividends Net inflow from financing activities Net change in cash Plus: beginning cash balance 3,000 15,000 70,000 $85,000 Ending cash balance