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ACCT221 Homework

Background:

At the end of 2019, Manar Corporation’s computerized information systems experienced a serious malfunction. The information technology specialists along with the company’s accounting team were able to recover the following information:

The following account balances as of January 1, 2019:

(in Thousands of Dollars)

Debits

Credits

Cash

38500

Supplies

1,200

Inventory

38,000

Prepaid rent

22,000

Machine

7,000

Accumulated depreciation

200

Salaries payable

5,500

Unearned rent revenue

10,750

Notes payable

0

Retained earnings

1,750

The income statement for the year ending of December 31 2019 (amounts in thousands):

Manar Corporation

Income Statement

For the Year Ended December 31 2019

Sales revenue

$54,250

Cost of goods sold

31,000

Gross profit

23,250

Operating expenses:

Salaries

14,000

Supplies

2,000

Rent

3,000

Depreciation

1,200

Bad debt

1,950

Total operating expenses

$22,150

Operating income

1,100

Other income:

Rent revenue

17,250

Net income

$18,350

The portion of the statement of cash flows for the year ending December 31, 2019 (amounts in thousands):

Manar Corporation

Statement of Cash Flows

For the Year Ended December 31 2019

Cash Flows from Operating Activities

Net income

$18,350

Deprecation

1200

Increase in accounts receivable

(8,900)

Decrease in supplies

250

Decrease in inventory

9,000

Decrease in prepaid rent

3,000

Decrease in Accounts payable

(15,000)

Increase in salaries payable

7,500

Decrease in unearned rent revenue

(10,350)

Net cash flows from operating activities

$5,050

The team found the following statement of financial position. However, due to the malfunction, the statement has missing information and classification inaccuracies (amounts in thousands). The only additional piece of information that was recovered was a receipt showing that the machines were purchased with cash.

Manar Corporation

Statement of Financial Position

At December 31, 2019

Assets

Current assets:

Inventory

?

Supplies

?

Cash

$42,650

Accounts receivable

$12,850

Less: Reserve for accounts receivable

2,450

10,400

Goodwill

2,000

Prepaid rent

?

Total current assets

104,000

Property and equipment:

Land held for sale

3,000

Machines

12,900

Less: Depreciation reserve

?

?

Total assets

$118,500

Shareholders Equity and Liabilities

Shareholders’ equity:

Share capital

50,000

Unearned rent revenue

?

Retained earnings

18,100

Total shareholders’ equity

$68,100

Current liabilities:

Accounts payable

20,000

Salaries payable

?

Foreign currency translation reserve

10,000

Note payable (Due in 2022)

7,000

Total current liabilities

50,400

Total shareholders’ equity and liabilities

$118,500

Required:

  1. Identify the mistakes and classification inaccuracies in the above statement of financial position. Provide your opinion as to why you believe they are inaccurate. (2 Marks)
  2. Do you agree or disagree with the following statement: “the matching principle means that revenues equal expenses.” How could violating the matching principle impact analysis of performance for the company? (1 Mark)
  3. Find the missing data in the above statement of financial position. (1.5 Mark)
  4. Prepare the correct statement of financial position (free of errors and missing information) as of December 31, 2019. (2.5 Mark)
  5. Prepare the full statement of cash flows for the period ending December 31, 2019. (2 Mark)
  6. Discuss the benefits of the classification of the statement financial position. (1 Mark)

General guidelines:

This project is designed to be conducted individually. Therefore, it is not permitted for any student to seek help from others in any stage of this project.

Students should observe the following:

  • Please useTimesNew Roman as the font, size 12, and lines are to be 1.5 spaced NOT SINGLE SPACED, also ADJUST THE LINES IN ALL THE PARAGRAPHES.
  • To satisfy question 6, you are expected to refer to several internet websites, books, or articles and state these sources in the list of references at the end of your report.