ACCT4160
Winter 2025
Group Assignment #1
Total Marks: 24 marks
Due at 11:59pm on Jan 22, 2025
Submit your typed answer in good format (word or PDF) with a cover page indicating the names of
your group members. Please identify only the names of group members on your response who were
involved in developing your answers. 4 marks will be deducted if you submit an unformatted Excel
spread sheet or do not indicate the names of group members. Marks will be deducted for significant
amounts of irrelevant discussion for an answer. The assignment is due at 11:59 Jan 22 on Moodle.
1. Variable Ltd operates under ideal conditions of uncertainty, with a fiscal year end of December 31st. Its
cash flows depend crucially on the state of the economy.
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On January 1, 2025, Variable started its business by purchasing a factory.
In 2025, cash flows from selling goods from the factory will be $18,000 if the economy is good, and
$10,000 if it is bad.
In 2026, cash flows from selling goods from the factory will be $24,000 if the economy is good, and
$14,000 if it is bad.
Operating cash flows are received at year-end.
Whether conditions are good or bad, the factory will cease operations at the end of the second year.
At that point, the factory will have a residual value of $2,000, which will be received on January 1,
2027.
The factory cost is financed by issuing common shares.
At the start of each year, the probability that the economy will be good is 0.6, and 0.4 that it will be
poor.
The interest rate in the economy is 5% both years.
Variable pays a dividend of $150 at the end of 2025 and $250 at the end of 2026.
Round dollar figures to the nearest dollar.
Required.
a. In 2025, the economy turns out to be good. Prepare an income statement in good form for 2025, and a
balance sheet as at the end of 2025. Include your calculations on your rough work page. (20 marks)
b. What would retained earnings be for 2026, assuming the economy turns out to be good again? Show
your calculations (can be on rough work page if clearly labeled). You do not need to do an income
statement or balance sheet for 2026. (4 marks)