Answer :
Sure, let's start with preparing the financial statements under the assumption that the company uses a single-step income statement format.
### Income Statement for Year 1:
```
Revenues:
Cash revenues $35,000
Expenses:
Cash expenses ($18,100)
Net Income $16,900
```
### Capital Statement (Statement of Changes in Equity) for Year 1:
```
Capital, January 1, Year 1 (Beginning Balance) $60,000
Add: Net Income $16,900
Less: Cash Distributions ($4,000)
Capital, December 31, Year 1 (Ending Balance) $72,900
```
### Balance Sheet at December 31, Year 1:
```
Assets:
Cash $57,900
Liabilities:
None ---
Equity:
Capital $72,900
Total Liabilities and Equity $72,900
```
### Statement of Cash Flows for Year 1:
```
Cash Flows from Operating Activities:
Cash receipts from customers $35,000
Cash paid for expenses ($18,100)
Net Cash Provided by Operating Activities $16,900
Cash Flows from Financing Activities:
Cash received from owners (January 1) $60,000
Cash paid for distributions ($4,000)
Net Cash Provided by Financing Activities $56,000
Net Increase in Cash $72,900
Cash, January 1, Year 1 $60,000
Cash, December 31, Year 1 $57,900
```
These statements assume that all transactions are made in cash.
### Income Statement for Year 1:
```
Revenues:
Cash revenues $35,000
Expenses:
Cash expenses ($18,100)
Net Income $16,900
```
### Capital Statement (Statement of Changes in Equity) for Year 1:
```
Capital, January 1, Year 1 (Beginning Balance) $60,000
Add: Net Income $16,900
Less: Cash Distributions ($4,000)
Capital, December 31, Year 1 (Ending Balance) $72,900
```
### Balance Sheet at December 31, Year 1:
```
Assets:
Cash $57,900
Liabilities:
None ---
Equity:
Capital $72,900
Total Liabilities and Equity $72,900
```
### Statement of Cash Flows for Year 1:
```
Cash Flows from Operating Activities:
Cash receipts from customers $35,000
Cash paid for expenses ($18,100)
Net Cash Provided by Operating Activities $16,900
Cash Flows from Financing Activities:
Cash received from owners (January 1) $60,000
Cash paid for distributions ($4,000)
Net Cash Provided by Financing Activities $56,000
Net Increase in Cash $72,900
Cash, January 1, Year 1 $60,000
Cash, December 31, Year 1 $57,900
```
These statements assume that all transactions are made in cash.