Dr$.$ John Anderson previously worked as a research scientist for Sensor Inc., a company that

develops tiny sensors that detect and identify trace amounts of chemicals in the air. Sensor Inc.

markets and sells the sensors to industrial companies to assist with leak and hazardous agent

detection. Anderson plans to license the technology and develop the sensor for a device that

would help physicians detect early$-$stage cancers. Patients would breathe directly into the

device, which would analyze a users breath for traces of key compounds associated with the

most common cancers. In addition to eliminating the need for invasive biopsy procedures, the

screening tool would also be inexpensive, easy to use and provide immediate results.

In $2012,$ Anderson applied for the trademark for BreatheScreen with the United States Patent

and Trademark Office and was granted the trademark in November $2012.$ In addition to the

small entity electronic filing fee of $$375$ for the trademark, Anderson paid $$2,500$ to a lawyer

who assisted him with the filing process.

The following provides a summary of events for $2013$:

$1.$ On January $2,$ Anderson, together with three investors, established BreatheScreen Inc.

BreatheScreen issued $17,000,000$ common shares to investors for $$2$ per share.

$2.$ Also on January $2,$ BreatheScreen issued an additional $3,000,000$ shares, which were

given to Anderson in exchange for the trademark BreatheScreen. The trademark is

viewed as a key success factor to the business.

$3.$ On January $5,$ BreatheScreen signed a one$-$year licensing agreement with Sensor Inc. The

licensing period began on February $1,2013,$ and the annual fee of $$3,000,000$ was paid in

full.

$4.$ On January $10,$ BreatheScreen purchased new machinery that will be used in the

production of the BreatheScreen for $$13,500,000$ in cash. An additional $$1,500,000$ was

paid for installation.

$5.$ BreatheScreen contracted with a small health technology company to modify the original

sensing chip to detect certain volatile organic compounds $($VOCs$)$ associated with cancer.

Toward the end of February $2013,$ the health technology company delivered the required

specifications and a pre$-$production model and was paid a total of $$2,000,000.$

$6.$ On February $23,$ BreatheScreen paid $$6,000,000$ upon receiving a delivery of materials

for use in the production of BreatheScreen.

$7.$ BreatheScreen paid $$400,000$ for salaries to corporate officers and employees $($for the

January to June period$).$

$8.$ On July $1,$ BreatheScreen borrowed $$6,000,000$ from a bank. The annual interest is $10$

percent and is paid semi$-$annually.

$9.$ Additional materials $($electrical components, packaging, labels, etc.$)$ to be used in

BreatheScreen production were purchased for a total of $$3,000,000.$ Under the favorable

terms obtained from its suppliers, BreatheScreen will make no payments until February

$2014.$

$10.$ During the nine months ended December $31,2013,$ the company paid $$2,000,000$ for fire

insurance for the production facility and other production$-$related expenses $($e$.$g$.,$ utilities

and labor$).$

$11.$ An additional $$3,300,000$ in cash was paid for corporate salaries and other corporate

expenses $($for the July to December period$).$

$12.$ BreatheScreen spent $$2,000,000$ in cash on advertising to help introduce the product.

They initially started with print advertising in journals and magazines targeted to health

care professionals but quickly realized the need for a social media presence. They hired

an unpaid intern to help build online awareness.

$13.$ Toward the end of $2013,$ sales started to accelerate. BreatheScreen sold and shipped a

total of $$23,000,000$ of its products. At the end of the year, a total of $$9,600,000$ of these

sales had yet to be collected. The largest single receivable was due from a reputable

pharmaceutical company, which purchased a substantial number of devices as part of a

promotional campaign. Most of the other receivables were on transactions that had been

made close to year$-$end, and were expected to be collected in January $2014.$

$14.$ On December $13,$ BreatheScreen signed a contract with the organizer of the

International Fair for Medical Devices $2014($IFMD$)$ for $1,000$ units of BreatheScreen,

with the intention of giving them away to health care professionals visiting the trade

show. The selling price specified in the contract is $$500$ per unit. BreatheScreen This document is authorized for use only in Financial Statement Analysis $-25$ July $2016$ by Dr Ding Ding, SIM University from July $2016$ to September $2016.$ BreatheScreen Inc.: Transaction Analysis and Financial Statements A$-216$ p$.3$ promised to deliver the units on March $10,2014.$ IFMD had up to $30$ days after delivery

to pay for the devices.

$15.$ At the end of the year, BreatheScreen paid $$300,000$ in interest on their bank loan.

$16.$ BreatheScreen received $$200,000$ in interest on its cash account.

The following additional information was gathered in the process of preparing BreatheScreens

financial reports for $2013$:

$17.$ The $12-$month licensing agreement with Sensor Inc. was due to expire on January $31,$

$2014.$ As of December $31,2013,$ the company was still negotiating the terms of an

extension of the licensing agreement.

$18.$ The machinery used in the production of BreatheScreen was expected to last for

approximately $5$ years $($one year of which had already passed$).$ BreatheScreen did not

expect the machinery to have any remaining value after $5$ years.

$19.$ As of December $31,2013,$ there was still $$900,000$ worth of materials in the warehouse.

There were no finished or partially finished BreatheScreen devices.

$20.$ The trademark for BreatheScreen is initially valid for $10$ years and may be renewed

indefinitely for $10-$year periods. The filing fee for a trademark renewal was $$400.$ A

valuation analysis conducted at the end of the year suggested that the value of the

trademark had increased to approximately $$10,000,000.$ This document is authorized for use only in Financial Statement Analysis $-25$ July $2016$ by Dr Ding Ding, SIM University from July $2016$ to September $2016.$

Balance sheet and Income statement and the cash flow statement for the above problem.