Problem #1 - (40 points)

On July 1, 2022, Benett Alexander established Chemalite, Inc. to develop, manufacture and sell chemalites, which are hand-held cylinders that give off a bright yellow-green glow when bent. The following transactions occurred during July 1, 2022 through December 31, 2022.

1. The company sold 100,000 shares of common stock with a par value of $1 per share for $500,000.
2. The company spend $212,500 on machinery that would be used to produce the chemalites.
3. The company purchased $250,000 of plastics and chemicals for use in the production of chemalites.
4. During the year, the company expended $350,000 on direct manufacturing labor, and on manufacturing-related overhead (rent, utilities, supervisory labor).
5. The company spent $23,750 on research and development costs to develop the prototype for chemalites.
6. The company spent $22,500 on television and trade journal advertising to increase the brand value of the company.
7. The company paid $87,500 on corporate salaries and other corporate expenses.
8. During the year, the company sold and delivered Chemalites to customers for $754,500. Customers still owed the company $69,500 at December 31, 2022. The cost of the sold Chemalites was $545,000.
9. On December 1, 2022, the company borrowed $50,000 from a bank. The entire principal amount is due in two years (i.e. on April 1, 2021).
10. On December 1, 2022, the company paid dividends of $25,000.
11. On December 31, 2022, the company spent $60,000 to repurchase 10,000 shares of its common stock.

Potential Adjustments

Assume that the company has a monthly accounting cycle. Use the following information to construct the corresponding adjusting entries on December 31, 2022.

1. The machinery used to produce the Chemalites had an expected useful life of 10 years and $0 salvage value.
2. The note with the bank described in transaction 9 had a 4% annual rate (simple interest). The company had use of the borrowed funds for 1 month as of December 31, 2022.
3. The committee organizing the 2024 Olympic Games placed a firm order with the company for 60,000 chemalites at a price of $3 each. The committee planned to pay for the order in 2023 and the company planned to deliver the chemalites in 2023.
4. 10% of the accounts receivable on December 31, 2022 was estimated to be uncollectible.
5. The market value of the inventory on December 31, 2022 was $40,000.
6. An external appraisal of the technology developed through the research and development expenditures described in 5 above indicated that the technology was worth $125,000 at December 31, 2022.

Required:

1. Use the attached FSET spreadsheet to record the transactions and adjusting entries. The first entry is provided as an example.
   1. For cash transactions, indicate whether the transaction is operating, investing, or financing by placing a O, I, or F in column X.
   2. If an income statement expense account is affected, enter the name of the account in column W.
   3. If the transaction has no income statement impact, enter No entry required in column Y.

2. Prepare a Balance Sheet (as of December 31, 2022), an Income Statement (for the 6 months ended December 31, 2022), and a Statement of Cash Flows under the direct method (for the 6 months ended December 31, 2022).

Problem #2 (5 points)

The following selected data pertains to Carpenter Inc.

Net Income $75,000

Decrease in Accounts Receivable $12,000

Increase in Inventory $ 4,000

Decrease in Interest Payable $ 5,000

Depreciation Expense $11,000

Based on this data, what is cash flow from operations?

Problem #3 (10 points)

The following balance sheet and income statement pertain to Nordstar.

Amounts in millions	2010	2009	2008
Net Income	613	441
Sales	9700	8627
Assets	5661	6579	7462
Liabilities	4451	5107	5962

Calculate Nordstars return on equity for 2010 and 2009.

What was the biggest contributor to the change in ROE from 2009 to 2010? Provide supporting computations.