EPS and Retained Earnings

P1-1: a) Southwest Development Company is a sole proprietorship owned by Ms. Harper: Ms. Harper would have unlimited liability in such a situation; all liabilities of the business are Ms. Harper’s responsibility, so creditors can make claims against Ms. Harper’s personal assets if something happens to the business and the business fails to pay its debts. Since Ms. Harper invested $25,000 but owes $60,000 in unpaid debts, creditors can go after Ms. Harper’s personal assets for the debt of $35,000 and Ms. Harper would lose her investment of $25,000.
b) Southwest Development Company is a 50-50 partnership of Merideth Harper and Christopher Black: Ms. Harper would have unlimited liability in this situation, and both Ms. Harper and Mr. Black are equally responsible for all debts of the business. Ms. Harper would be responsible for repaying the debt of $35,000 (the difference between her investment and unpaid debt), and if Ms. Harper fails to repay the debt, creditors can go after her personal assets for the remaining money owed. Ms. Harper would also lose the $25,000 she invested in the company.
c) Southwest Development Company is a corporation: Ms. Harper would have limited liability in this situation, which guarantees that she cannot lose more than she has invested into the company; Ms. Harper cannot lose more than $25,000.P1-3: a) Total Cash Inflow = Interest Received + Salary = $4,950 (calculation in excel)
Total Cash Outflow = Clothes + Dining Out + Groceries + Auto Payment + Utilities + Mortgage + Gas = $4,357 (calculation in excel)
b) Net Cash Flow = Cash Inflow – Cash Outflow = $593 (calculation in excel)
c) Jane does not have a shortage; Jane made a profit.
d) Since Jane has a surplus/profit, Jane should use different strategies to maximize her cash assets. Jane could pay down long-term debt or pay down a revolving line of credit, Jane could purchase fixed assets with cash only, or Jane could…

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