INCOMEJanuary 1 to December 31, 2010

Salary (Kevin)	$ 42,000
Bonuses	$ 0
Salary (Megan)	$ 19,000
Bonuses	$ 0
Consulting income (Megan)	$ 5,000
Interest[1]	$ 200
Dividends[2]	$ 975
Capital gains distributions[3]	$ 3,197

Monthly salary after deductions:

Kevin Megan

Gross salary $ 3,500 $ 2,000

Income tax withholding 637 165

CPP 155 64

EI 63 31

Net salary $ 2,645 $ 1,740

Note: Megan will receive the consulting income monthly - $417.

EXPENSES--January 1 to December 31, 2010	Cash Flow Monthly	Cash Flow Annually
Rent	$850	$10,200
Utilities (included in rent)	0	0
Telephone ($35) and cable TV ($45)	80	960
Groceries	300	3,600
Food away from home	170	2,040
Auto loan payments	403	4,836
Auto maintenance (gas, repairs, licenses, etc.)	165	1,980
Medical/dental expenses (not covered by insurance)	50	600
Clothing	225	2,700
Contributions to GRRSP	175	2,100
Auto insurance	75	900
Income tax withholding	802	9,624
CPP	219	2,628
EI	94	1,128
Appliance, furniture, and equipment purchases		1,500
Personal care	50	600
Entertainment	200	2,400
Vacations		1,000
Education expenses (books and supplies)	150	1,800
Charitable contributions	25	300
Gifts ($35/mo. Jan. through Oct., $400/mo. Nov. and Dec.)		1,150
Reinvested interest, dividends, and capital gains distributions		4,372
Education loan payments ($515 is interest paid)	189	2,268
Computer loan payments	93	1,116
Minimum payments on credit cards	275	3,300
Miscellaneous	100	1,200

^[1]ING Direct accounts. Interest will be left in accounts to accumulate.

^[2]Templeton Growth Fund. Dividends will be reinvested.

^[3]Templeton Growth Fund. Distributions will be reinvested.

Using the income and expenditure information for 2010, complete an income and expenses statement for Megan and Kevin. Use the "cash flow" concept for this financial statement including all money inflows as income and all outflows as expenditures. Did Megan and Kevin have a cash surplus or a cash deficit in 2010? (10 marks)

QUESTIONS

1. What impact does the 2010 cash surplus (deficit) have on the following years (January 1, 2011) balance sheet? (2 marks)

2. Based on Megan and Kevin's financial statements, calculate the following ratios:

Savings ratio Liquidity ratio

Solvency ratio Debt service ratio (4 marks)