1 Mr. Sadik started a business selling readymade garments on 1 June 2021. After the first three months of his business, he was asked by tax officials to pay tax on the net income that he made for first three months. He had a course on accounting when he studied in university long ago and based on his limited knowledge he prepared the following financial statements that he wanted to submit to the Income Tax Department. Income statement for three months ended 31 Balance Sheet as at 31 August 2021 August 2021 Sales 300000 Assets: Less: Cost of goods sold 130000 Equipment 150000 Gross profit 170000 Furniture and fixtures 30000 Less: Operating expenses Accounts receivables 12000 Rent expense 30000 Cash and bank 40000 Salaries expense 45000 232000 Utility expense 10000 Drawing 24000 Inventory 22000 Freight out 12000 Equity: Capital 140000 Net income 27000 167000 Net Income 143000 27000 Liabilities: Accounts payable 15000 10% Loan 50000 65000 232000 Mr. Sadik was not confident enough about the profit that he calculated for the first six months of his business. He also heard about Generally Accepted Accounting Principles (GAAP) that he should follow while preparing financial statements in order to properly assess the performance of his business. For this reason, he asked your help to review the above financial statements. After a careful review, you have found the following adjustments that would be required to amend the above financial statements. (i) Actual amount of inventory on 31 August was $20,000. (ii) Rent expense included $5000 which was paid in advance for the month of September (iii) Outstanding salaries was $3000 at the end of August. (iv) Yearly depreciation of 18,000 for equipment and 6000 for furniture was not considered. (v) Loan was taken on 1 July 2021. Interest of 10% would be due in the following year.