Table 3.5 Magna Fax, Inc.
Income Statement
For the Year Ended December 31, 2005 | Sales revenue | | $150,000 | Cost of goods sold | | 117,500 | Gross Profits | | $32,500 | Selling expense | 4,500 | | General and administrative expense | 4,000 | | Depreciation expense | 4,000 | | Operating profits | | $ 20,000 | Interest expense | | 2,500 | Net profit before taxes | | $ 17,500 | Taxes (40%) | | 7,000 | Net profit after taxes | | $ 10,500 |

Magna Fax, Inc.
Balance Sheet
For the Years Ended December 31, 2004 and 2005 | | | 2004 | | 2005 | Assets
Cash | |
$24,000 | |
$21,000 | Accounts receivable | | 45,000 | | 39,000 | Inventory | | 30,000 | | 27,000 | Gross fixed assets | $42,000 | | $40,000 | | Acc. Depreciation | 22,000 | | 18,000 | | Net fixed assets | | 20,000 | | 22,000 | Total assets | | $119,000 | | $109,000 | Liabilities and Equity | | | | | Accounts payable | | $25,000 | | $30,000 | Notes payable | | 50,000 | | 40,000 | Accruals | | 1,000 | | 2,000 | Longterm debts | | 10,000 | | 8,000 | Common stock at par | | 1,000 | | 1,000 | Paidin capital in excess of par | | 4,000 | | 4,000 | Retained earnings | | 28,000 | | 24,000 | Total liabilities and equity | | $119,000 | | $109,000 |
5. The credit manager at First National Bank has just received the income statement and balance sheet for Magna Fax, Inc. for the year ended December 31,2005. (See Table 3.5.) The bank requires the firm to report its earnings performance and financial position quarterly as a condition of a loan agreement. The bank’s credit manager must prepare two key financial statements based on the information sent by Magna Fax, Inc. This will be passed on to the commercial loan officer assigned to this account, so that he may review the financial condition of the