Albergo del Mare Albergo del Mare began operating on January 1, 2013. On December 31, 2014, it reached the end of its second fiscal year. With a good reputation, a competent staff, and fairly good occupancy, the hotel had done well financially during both years. Innkeepers Giuseppe Siri and Valentina Far neti, who managed the inn, were completely dedicated to providing the best service possible to their guests, but they were not the least bit interested in keeping accurate financial records. Seeing a low cash balance in the checkbook, Siri and Farneti asked their local bank for a loan. The bank, in turn, requested the hotel's financial statements. The statements were presented in the format shown in Exhibit 1. Upon viewing the statements, the bank found them to be much too gen- eral. It insisted on additional information before a loan could even be considered-information dealing with depreciation, accruals, inventory counts, and other similar matters. Siri and Farneti were amazed. They had not anticipated any problems regarding their loan re- quest. After feverishly reviewing their records and supporting statements (with some expert as- sistance), they uncovered the following information: 1. The inventory of supplies should have been 3.000 instead of the 4,000 shown on December 31, 2014 2. The "Other expenses" account included 3,000 of insurance premiums that had been paid dur- ing the year. However, 2,000 of this amount was for insurance premiums that had been paid, in advance, for coverage during 2015 and 2016, 3. The land and building had been purchased in early January 2013 at a cost of 60,000. The building had an estimated useful life of 20 years. Its residual value was estimated to be 8,000, 4. During December, employees had earned, but had not yet been paid (as of December 31, 2014) salaries totaling 4,000. These had not been included in the 40,000 shown in Exhibit 1. 5. The 110,000 revenue shown in Exhibit I included 4,000 in cash deposits that customers had made for reservations that would be used in 2015. 6. A real estate agent had told Siri and Farneti that a client of hers had made an offer of 100,000 in December 2014 to purchase the hotel's building and land. The client had the necessary funds in the bank. Assignment Using the information above, prepare a corrected set of financial statements. ALBERGO DEL MARE Exhibit 1. Financial Statements for 2014 Income Statement 2014 110,000 Revenue Expenses: Salaries Maintenance Other expenses Total expenses Income 40,000 25,000 35,000 100,000 10,000 Balance Sheet As of December 31, 2014 Liabilities and Equity Accounts payable 9,000 Assets Cash Accounts receivable Supply inventory Building Land Total Assets 1,500 13,000 4,000 48,000 12,000 78,500 Contributed capital Retained earnings 45,000 24,500 Total liabilities and equity 78,500