| Course | FIN-3140 Small Business Finance |
|---|---|
| Module | Module 2 |
| Paper type | Written assignment 2: financial statements |
| Length | About 561 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | B.S.B.A. in Finance |
| Updated | October 2026 |
Free sample paper for FIN 3140 Module 2
A Season in Two Statements: Cape Point Whale Watch's 2025 Income Statement and Balance Sheet
Student Name
B.S.B.A. in Finance, Thomas Edison State University
FIN-3140: Small Business Finance
Mentor Name
Month Day, Year
A Season in Two Statements: Cape Point Whale Watch's 2025 Income Statement and Balance Sheet
Problem 1: The Income Statement
The operating margin is 17 percent. Crew wages and fuel together take 40 percent of revenue, which shows how the business's profit depends on filling each trip: the cost of running the boat is nearly the same with 40 passengers as with 140. As an LLC taxed as an S corporation, Cape Point pays no entity income tax; its $154,670 passes through to the owner's personal return. Adelman and Marks (2014) note that lenders to small firms rely heavily on the owner's statements, and Petersen and Rajan (1994) found that firms with close banking relationships obtain credit more easily.
| Cape Point Whale Watch, income statement, 2025 | Amount |
|---|---|
| Whale and dolphin cruises: 300 trips, 70 passengers average, $42 average fare | $882,000 |
| Sunset cruises | 189,000 |
| Private charters | 80,000 |
| Concessions | 96,000 |
| Total revenue | 1,247,000 |
| Crew wages | (356,000) |
| Fuel | (142,000) |
| Maintenance and winter haul-out | (71,000) |
| Insurance | (64,000) |
| Dock lease | (48,000) |
| Marketing | (45,000) |
| Booking platform fees, 3% of ticket revenue | (34,530) |
| Cost of concessions | (38,400) |
| Office and administration | (58,000) |
| Owner's salary | (85,000) |
| Depreciation | (93,000) |
| Operating income | 212,070 |
| Interest on the boat loan | (57,400) |
| Income before owner-level taxes | $154,670 |
Problem 2: The Balance Sheet
| Balance sheet, December 31, 2025 | Amount |
|---|---|
| Cash | $212,000 |
| Charter deposits receivable | 18,000 |
| Concession inventory | 14,000 |
| Prepaid insurance | 41,000 |
| Total current assets | 285,000 |
| Vessel, cost $1,400,000 less accumulated depreciation of $653,000 | 747,000 |
| Shore equipment, net | 48,000 |
| Total assets | $1,080,000 |
| Accounts payable | $22,000 |
| Accrued wages | 9,000 |
| Customer deposits for 2026 trips | 64,000 |
| Current portion of boat loan | 92,000 |
| Total current liabilities | 187,000 |
| Boat loan, less current portion | 728,000 |
| Total liabilities | 915,000 |
| Owner's equity | 165,000 |
| Total liabilities and equity | $1,080,000 |
Problem 3: The Liability Hidden in Ticket Sales
Customers who booked and paid for 2026 trips by December have given Cape Point $64,000 that it has not yet earned. Under accrual accounting this is a liability, customer deposits or unearned revenue, until the trips sail. Recording it as 2025 revenue would overstate profit and understate obligations; if the season were canceled, the money would have to be refunded.
Problem 4: Why Owner's Equity Is So Small
Owner's equity of $165,000 is small next to $1.08 million of assets. In a pass-through company, equity rises with each year's income and falls with the owner's distributions, which in a small business often equal most of the profit. The owner has drawn out most of her earnings since buying the boat in 2019, leaving the business financed mainly by the bank. Debt of $820,000 is about five times equity, which explains why the bank asks for the owner's personal guarantee.
Problem 5: What the Statements Tell the Owner and the Bank
The income statement shows a profitable season with a clear dependence on passenger volume. The balance sheet shows a business that is asset-heavy, highly indebted and seasonal: December's $212,000 of cash must carry the company through five months with almost no revenue, paying the loan, insurance, dock rent and the haul-out. The vessel, depreciated to $747,000, is the main collateral. Graham and Harvey (2001) found that even large firms' financing choices are driven heavily by practical concerns about flexibility and credit, and for Cape Point the statements make clear that its next borrowing will depend on the vessel's condition and the owner's guarantee more than on its profits.
References
Adelman, P. J., & Marks, A. M. (2014). Entrepreneurial finance (6th ed.). Pearson.
Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7
Petersen, M. A., & Rajan, R. G. (1994). The benefits of lending relationships: Evidence from small business data. Journal of Finance, 49(1), 3-37. https://doi.org/10.1111/j.1540-6261.1994.tb04418.x
Reading the FIN 3140 Module 2 assignment instructions
The second FIN-3140 written assignment covers Module 2, Financial Statements, and like the other five it consists of questions and problems worth part of 36 percent of the grade. Expect to prepare an income statement and balance sheet from account balances, explain accrual concepts such as unearned revenue and depreciation, account for owner's equity in a small business and interpret what the statements show. The boat company is invented and your own problems bring their own numbers. Problems usually hand you a list of accounts and ask for a small firm's three statements, or ask you to read them.
Inside the FIN 3140 Module 2 example
Problem 1 builds the income statement from revenue streams and expense lines, then reads the margin and the cost structure. Problem 2 builds a balanced balance sheet. Problem 3 isolates advance bookings as a liability and explains why, Problem 4 explains the small equity balance through the way pass-through owners draw income and Problem 5 interprets both statements from the owner's and the bank's view, ending with what will drive the next loan. The statements are built first and then read for what they say about the owner's position. A short interpretation follows each statement.
Reading the FIN 3140 Module 2 grading rubric
Statements that tie out, from net income to the change in cash, earn the core of this grade. On statement problems, mentors check that the statements are complete and balance, that items are classified correctly, including unearned revenue and the current portion of debt, and that interpretation goes beyond the totals. Explaining the business's cost structure and seasonal cash position, and recognizing what a lender would focus on, shows the understanding the module is meant to build. Mentors check that the statements balance, that items are classified correctly and that the interpretation connects profit to cash. Clear labels and totals help the mentor check the work. Statements that balance, with cash flow reconciled to the change in cash, are the minimum; the best answers also say what the statements show about the business's first season.
FIN 3140 Module 2 help: mistakes that cost marks
Statement problems lose points for counting advance deposits as revenue, for leaving the current portion of long-term debt in long-term liabilities and for presenting numbers without reading them. Check that assets equal liabilities plus equity. Classify every item by when it will be settled. Explain what the margins and the debt load mean for the owner. Lay each statement out as a table a reader can add up. A free first sample of your own FIN-3140 Module 2 problems is available on request. Check that assets equal liabilities plus equity before interpreting anything, and show how net income and cash differ. Classify each account before placing it. Explain any difference between profit and cash in a sentence the owner would understand.
Write yours, or have the desk draft it
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FIN 3140 Module 2 questions, answered
Where can I find a free FIN 3140 Module 2 sample paper?
The whale-watching company problem set above prepares an income statement and balance sheet, explains customer deposits as a liability and interprets the statements for the owner and the bank.
Are customer deposits revenue?
No. Money received for services not yet provided is a liability, unearned revenue, until the service is delivered.
Why is owner's equity low in many small businesses?
Owners of pass-through firms often withdraw most of the profit each year, so the business is financed mainly by debt.
What is the current portion of long-term debt?
The principal due within the next year, shown as a current liability even though the loan as a whole is long-term.
Does an S corporation pay income tax?
Generally no; its income passes through to the owners, who pay tax on their personal returns.