On August 31, 2020, World Travel Consulting showed the following adjusted account balances in alphabetical order:

Accounts payable......................................................................... $ 2,800
Accounts receivable ..................................................................... 22,500
Accumulated depreciation, building .......................................... 37,000
Accumulated depreciation, equipment ..................................... 13,000
Building ........................................................................................ 271,000
Cash ............................................................................................... 15,000
Charles World, capital ....................................................................... ?
Equipment .................................................................................... 38,000
GST receivable.................................................................................... 840
Interest payable ............................................................................. 1,400
Land ............................................................................................ 145,000
Long-term mortgage payable .................................................. 111,860
Notes payable, due December 1, 2021 ..................................... 26,000
Notes payable, due March 1, 2021 ............................................ 17,000
Office supplies ............................................................................... 1,800
Office supplies expense .............................................................. 14,000
Other operating expenses (including depreciation) .............. 101,000
Prepaid expenses .......................................................................... 8,500
Salaries expense ........................................................................ 126,000
Salaries payable ............................................................................ 8,200
Sales ........................................................................................... 631,500

Required

1. Prepare the liability section of the balance sheet at August 31, 2020 based on the above trial balance.

2. Prepare a corrected balance sheet at August 31, 2020. Charles World, the owner, is planning on expanding the business and has applied for a $2,000,000 bank loan. John Tanner, a CPA and Certified Fraud Examiner, was contracted by the bank to review the financial statements of World Travel Consulting. Tanner discovered that included in sales were the following:

Advance air ticket sales ................................................................. $106,000
Accommodation prepayments ......................................................... 49,000
Unearned bus tour revenue ............................................................. 41,800

He also noted the following excerpt from the amortization schedule of the long-term mortgage payable:

Year .................. Principal Balance at August 31
2019 ................................................. $146,320
2020 ................................................... 111,860
2021 ..................................................... 70,040
2022 ..................................................... 41,820

Analysis Component: Using your answers from Parts 1 and 2, discuss the implications of John’s findings on the financial statements.