In the previous session, we did financial planning of PEN Company in the second year, based on nine key assumptions. We then constructed the cashflow statement. From this, we determined the amount of Angel funding. Now, based on the cashflow statement, let's construct a balance sheet of PEN Company at the end of the second year. This is the balance sheet of PEN Company in the beginning of Year 2. The first line of the balance sheet at the end of the Year 2 comes from the previous slide. In the first action, the company gets an Angel funding of $5,000. So, the cash has increased by 5,000, and so has the shareholder's equity. The company purchases raw materials worth $4,000 with cash, and so there is a decrease of cash by 4,000 and an increase of materials inventory with the same amount. In action 3, the company collects accounts receivable from last year's revenue that was $2,500. So, increase of cash by that amount and now company has no accounts receivable. In the beginning of the year, the company hires a production worker and the annual salary is $1,200. So, by the end of this year, cash will have decreased by $1,200 and since the production worker is working to produce products, the value of finished goods inventory is increased by this amount. Action 5 is related to the production. The company produces a total of 12,000 pens and the remaining material inventory at the end of the year is $1,000. So, the company uses $4,000 worth of materials. There is a decrease of material inventory by $4,000, and this same amount appears in the column for the finished goods inventory. The next action is depreciation, and just like the previous year, there is a decrease in value of the equipment by $800. Since this equipment is used for production of finished goods, there is the increase in the value of finished goods inventory with the same amount. CEOs annual salary is $2,000, and the other expenses are $1,000 annually. So, there is a decrease of cash by $3,000, and the same amount in shareholders equity. Just like the last year, 10 percent interest on the loan is paid. So, that's minus 400 in cash. Also minus 400 in shareholders equity. In Action 9, the company will sell a total of 10,000 pens with the unit price of $1, and the sales money is collected one-quarter later. So, during the year, the company collects $7,000 in cash, but the sales for the fourth quarter will be collected in the next year. So, there is an increase of cash by $7,000 and an increase of accounts receivable by $3,000. The company sells 10,000 pens out of 12,000 production. So, the decrease of value in finished goods inventory will be five over six of $6,000, which is minus $5,000. So, the company has a profit of $5,000, and that goes to shareholders equity. If we add all these numbers, we get the last line and it is the balance sheet at the end of the second year. In summary, we have constructed the balance sheet of PEN Company at the end of the second year.
