Hello, could you please help me to solve this case? Do I need to create balance and income statement for this questions? Or what else do I need? Everything will be very helpful for me, because it is first time for me to solve case.

Case:

InJune2001,MariaHernandezfoundherselfoutofajobforthesecondtimeinsixmonths.Assheleftthebuildingthathadhousedherfaileddot-comemployer,carryingasmallboxofpersonalbelongings,hermindwasalreadyembracingaplanthatwouldhaveherstartherownbusiness.Atleast,inherownbusinessshewouldcontrolpartofherowndestinyinsteadofbeingsubjecttothedecisionsofothers.HernandezwasagraduateoftheMassachusettsCollegeofArt.Afterworkingthreeyearsforanadvertisingagencywhereshespecializedinadvertisinglayout,sheusedpartofhersavingstotakeatechnicalcourseinwebpagedesign.Herfirstjobaftercompletinghertrainingwaswithastartupretaildot-comthatranthroughitsinitialcashandloansinlessthatoneyear.Ittookheronlyoneweektofindherlatestemployer,butinlessthansixmonthsithadfolded,too.Shelovedherworkasawebpagedesigner,andshehadconfidenceinherownabilitiesandskill.Herarttrainingallowedhertoblenddesign,color,andwebpagelayoutinattractiveandeffectiveways.Buthavingbeenburnedtwicebystartupdot-comemployers,shewasalsoreluctanttogotoworkforathird.Withindaysshehadputtogetherasimplebusinessplantocreateawebpagedesignconsultancytoofferwebpagedesignstoanyone.Shewouldheadthecompanyandemployotherdesignersaswelltomeetdemand.TherewereplentyofpotentialcustomersinBoston,andsheknewthatseveralofherformercolleaguesfromartschoolcouldbeinterestedinthebetterpaythatwebpagedesigncouldsupport.OnJune20,2004,shetransferredallofhersavings,$30,000,toanewbankaccountwiththecompanyname,andtwodayslatersheadded$20,000borrowedfromherfathertotheaccount.Afterthatthingsmovedquicklyassherentedasecondfloorofficefor$3,000amonth,payingonemonth'srentinadvanceasasecuritydeposittoapplytotheendofthelease,and$3,000forJuly2004.Shepurchasedsomeusedcomputerequipmentwithsoftwarefromherlastemployer,andorderedstationaryandofficesuppliesthatcost$5,000whentheyweredeliveredonJune29.MariaHernandez&AssociatesopenedforbusinessonJuly2,2004.AlthoughMariawasnotanaccountant,shetookstockofhercompany'sfinancialpositionasshebegantoseekherfirstcontracts.Thecompanyhadspentallbut$12,000ofthecashthathadbeenputintothebankaccount,butithadsomeassetsaswell.

Mariawasalittleworriedthatthecashhadgonesoquickly,butshealsohadconfidenceinherselfandherwillingnesstoworkhard.Inthefirstfewdays,Marialineduptwowebpagedesignprojectsfromlocalbusinesses.Shespentpartofeachdayworkingontheprojects,andtheremainderofhertimewasspentlookingfornewclients.ByearlyAugustshehadfourotherdesignersatworkandasteadystreamofnewworkcominginbywayofreferrals.Shealsofeltfartoobusytoattendtoanyfinancialaspectsofthebusiness.Whenclientspaid,themoneywentintothebankaccount.Theassociateswerepaidweekly,andshepaidrentandotherbillswhentheywerereceived.Intheninthweekofoperations,Maria'sfathertelephonedhertoaskhowthingsweregoing,andshecouldnotanswerthequestionwithanyconfidence.Itwastimeforanaccounting,andtheendofAugustwouldbeagoodtimetodoit.Hernandezfoundthefollowinginformationshehadaccumulatedduringthetwomonthsofoperations:

1.Clientshadpaid$40,000forcompletedwork,andtwoclientsstillowedatotalof$7,000forworkthathadbeencompletedanddeliveredtothem.TherewerenoprojectsunderwayastheofficeclosedonAugust31fortheLaborDayweekend.

2.Additionalofficesupplieshadbeenpurchasedforcashof$900,andofficesuppliesandstationerythathadcost$4,200werestillonhand.

3.Rentof$6,000forAugustandSeptemberwaspaidincash.Utilitybills,arepairofequipment,andthesalariespaidtodesigners(includingMariaHernandez)werepaidincashtotaling$33,000.

4.AdditionalequipmentandsoftwarewaspurchasedonAugust27for$11,000,withhalfofthatamountbeingpaidincashandtheremainderdueonemonthlater.AsMariaHernandezthoughtaboutthefirsttwomonth'soperations,shewasperplexedbythefactthatcashinthebankhaddecreasedby$5,400eventhoughshewassurethebusinesswasoperatingprofitably.Shealsowonderedhowtoaccountforthefollowing:

1.Shehadagreedtopayherfatherinterestonhisloanof6%peryear,butnointeresthadbeenpaidsofar.

2.Theequipmentandsoftwarewereworkingoutwell,butHernandezknewthattheyhadatechnologicallifeofnomorethanthreeyearsfromthetimethatshehadpurchasedthem.

Inbrief,MariaHernandezfeltthatthefirsttwomonthshadbeensuccessful,butshewaspuzzledabouthowtodraftmeaningfulreportstomailtoherfather.

Questions:

Question 1: How would you have reported on operations of Maria Hernandez & Associates through Aug 31, 2011? Had the company made a profit as Maria Hernandez believed? If so, how would you explain why the cash in the bank has declined?

Question 2: How would you report the status of the business on Aug 31, 2001?