At the beginning of 2020, Apple Co. was notified that a new city law would require them to restore the forest behind their main factory if they intend to keep using it. The estimated cost of the restoration will be approximately $690,000 and must be completed within the next 4 years or the factory will be shut down. When the notice was received, Apple's board decided to wait until the beginning of 2023 to start the restoration.

Although the notice was received and the boards decision made at the beginning of the year, no journal entries have yet been made for this obligation. The factory was built 2 years ago when Apple co. was still a privately held company and is being depreciated using SL depreciation using the original estimate of a 12-year useful life. The depreciation for the building has already been recorded for 2020. The restoration will not change the factorys salvage value. Apple's management would like to know the effect of the restoration on the following ratios: Current Ratio, ROA

Assignment & Calculations:

1) Make the appropriate journal entries, if any, to account for the new liability (including any necessary changes to income tax expense). In making your entries, assuming that Apple's Internal Rate of Return is 5%. After making journal entries what are the changes necessary to the financial statements?

Multi-Step Income Statement For the Year Ended December 31, Year 2 Sales Revenue Sales Revenue Less: Sales Discounts $271,200 Sales Returns $1,073,500 Net Sales Revenue $22,600,000 $2,656,545 $1,344,700 $21,255,300 Cost of Goods Sold Cost of Goods Sold Gross Profit Statement of Cash Flows For Year Ended 12/31/Year 2 Cash Flow from Operations Net Income Adjustments: Change in AIR ($565,000) Change in Inventory $432,200 Change in Prepaid Insurance ($10,500) Change in Prepaid Rent ($56,500) Depreciation & Amortization $1,356,000 Change in AP ($912,056) Change in Income Tax Payable $159,081 Change in Unearned Revenue $226,000 Change in Wages Payable ($11,300) Loss on sale $2,530 Net Cash Flow from Operations $12,402.500 $8,852,792 Operating Activities Selling Expenses Advertising Expense Miscellaneous Seling Expenses Sales Force Salaries Expense Selling Commissions Expense Shipping Expense $423,750 $110,175 $310,750 $1.130,000 $185,038 $620,455 $3,277,000 Balance Sheet As of 12/31/Year 2 Year 2 Year 1 Assets Current Assets Cash $237,295 $1,130,000 AR $2,034,000 $1,921,000 Allowance for Bad Debts ($113,000) ($565,000) Inventory $2.731,800 $3,164,000 Prepaid Insurance $349,500 $339,000 $ Prepaid Rent $282,500 $226,000 Total Current Assets $5,522,095 $6,215,000 Long-term Investments Loans to other businesses $904.000 S904,000 Expansion Fund $678,000 S678,000 Total Long-term Investments $1,582,000 $1,582,000 PPE Land $2,486,000 $1,582,000 Building $2,084,760 $1,800,000 Equipment $6,600,240 $2,938,000 Accumulated Depreciation ($3,378,825) ($2,250,000) Total PPE $7,792,175 $4,068,000 Intangible Assets Patents, net $339,000 $339,000 Total Assets $15, 235,270 $12,204,000 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable S443,944 $ $1,356,000 Income Tax Payable $385,081 $225,000 Unearned Revenue $565,000 $339,000 Wages Payable S271,200 $282,500 Current Portion of Loan Payable $113,000 $113,000 Total Current Liabilities $1,778,225 $2,316,500 Long-term Debt $2,159,713 Cash Flow from Investments Sale of AIR Sale of Equipment Purchase of Land Purchase of Building Purchase of Equipment Net Cash Flow from Investments $0 $25,295 ($904,000) ($276,760) ($3,927,240) ($5,082.705) Administrative Expenses Executive Salaries Expense Depreciation Expense Insurance Expense Miscellaneous Admin. Expenses Office Supplies Expense Consulting and Legal Fees Utilities Expense Total Administrative Expenses Income from Operations $988,750 $1,358,000 $194,925 $11,159 $87,575 $14,125 $169,500 Cash Flow from Financing Repayment of Loans Issuance of Notes Payable Payments of Dividends Net Cash Flow from Financing ($113,000) $1,356,000 ($330,000) $2,822,034 $4,981,747 $3,871,045 $913,000 Net Increase (Decrease) in Cash Cash, January 1, Year 2 Cash, December 31, Year 2 $70,625 ($144,075) ($2,530) Other Gains and Losses Rent Revenue Interest Expense Loss on sale Income from Continuing Operations before Taxes Income Tax Expenso Net Income ($892,705) $1,130,000 $237,295 ($75,980) $3,795,055 ($1,138,520) $2,656,545 $678,000 $1,808,000 $2,486.000 $4,802.500 EPS $1.02 Lean Payable $555,000 Notes Payable $3,164,000 Total Long-term Debt $3,729,000 Total Liabilities $5,507,225 Stockholders' Equity Common Stock $2,600,000 ($1 par, 5,000,000 authorized, 2,600,000 outstanding) Additional Paid-in Capital $678,000 Retained Earnings $6,450,045 Total Stockholders' Equity $9,728,045 Total Liabilities and Stockholder's Equity $15,235,270 $2,600,000 $678,000 $4,123,500 $7,401.500 $12,204,000 Multi-Step Income Statement For the Year Ended December 31, Year 2 Sales Revenue Sales Revenue Less: Sales Discounts $271,200 Sales Returns $1,073,500 Net Sales Revenue $22,600,000 $2,656,545 $1,344,700 $21,255,300 Cost of Goods Sold Cost of Goods Sold Gross Profit Statement of Cash Flows For Year Ended 12/31/Year 2 Cash Flow from Operations Net Income Adjustments: Change in AIR ($565,000) Change in Inventory $432,200 Change in Prepaid Insurance ($10,500) Change in Prepaid Rent ($56,500) Depreciation & Amortization $1,356,000 Change in AP ($912,056) Change in Income Tax Payable $159,081 Change in Unearned Revenue $226,000 Change in Wages Payable ($11,300) Loss on sale $2,530 Net Cash Flow from Operations $12,402.500 $8,852,792 Operating Activities Selling Expenses Advertising Expense Miscellaneous Seling Expenses Sales Force Salaries Expense Selling Commissions Expense Shipping Expense $423,750 $110,175 $310,750 $1.130,000 $185,038 $620,455 $3,277,000 Balance Sheet As of 12/31/Year 2 Year 2 Year 1 Assets Current Assets Cash $237,295 $1,130,000 AR $2,034,000 $1,921,000 Allowance for Bad Debts ($113,000) ($565,000) Inventory $2.731,800 $3,164,000 Prepaid Insurance $349,500 $339,000 $ Prepaid Rent $282,500 $226,000 Total Current Assets $5,522,095 $6,215,000 Long-term Investments Loans to other businesses $904.000 S904,000 Expansion Fund $678,000 S678,000 Total Long-term Investments $1,582,000 $1,582,000 PPE Land $2,486,000 $1,582,000 Building $2,084,760 $1,800,000 Equipment $6,600,240 $2,938,000 Accumulated Depreciation ($3,378,825) ($2,250,000) Total PPE $7,792,175 $4,068,000 Intangible Assets Patents, net $339,000 $339,000 Total Assets $15, 235,270 $12,204,000 Liabilities and Stockholders' Equity Current Liabilities Accounts Payable S443,944 $ $1,356,000 Income Tax Payable $385,081 $225,000 Unearned Revenue $565,000 $339,000 Wages Payable S271,200 $282,500 Current Portion of Loan Payable $113,000 $113,000 Total Current Liabilities $1,778,225 $2,316,500 Long-term Debt $2,159,713 Cash Flow from Investments Sale of AIR Sale of Equipment Purchase of Land Purchase of Building Purchase of Equipment Net Cash Flow from Investments $0 $25,295 ($904,000) ($276,760) ($3,927,240) ($5,082.705) Administrative Expenses Executive Salaries Expense Depreciation Expense Insurance Expense Miscellaneous Admin. Expenses Office Supplies Expense Consulting and Legal Fees Utilities Expense Total Administrative Expenses Income from Operations $988,750 $1,358,000 $194,925 $11,159 $87,575 $14,125 $169,500 Cash Flow from Financing Repayment of Loans Issuance of Notes Payable Payments of Dividends Net Cash Flow from Financing ($113,000) $1,356,000 ($330,000) $2,822,034 $4,981,747 $3,871,045 $913,000 Net Increase (Decrease) in Cash Cash, January 1, Year 2 Cash, December 31, Year 2 $70,625 ($144,075) ($2,530) Other Gains and Losses Rent Revenue Interest Expense Loss on sale Income from Continuing Operations before Taxes Income Tax Expenso Net Income ($892,705) $1,130,000 $237,295 ($75,980) $3,795,055 ($1,138,520) $2,656,545 $678,000 $1,808,000 $2,486.000 $4,802.500 EPS $1.02 Lean Payable $555,000 Notes Payable $3,164,000 Total Long-term Debt $3,729,000 Total Liabilities $5,507,225 Stockholders' Equity Common Stock $2,600,000 ($1 par, 5,000,000 authorized, 2,600,000 outstanding) Additional Paid-in Capital $678,000 Retained Earnings $6,450,045 Total Stockholders' Equity $9,728,045 Total Liabilities and Stockholder's Equity $15,235,270 $2,600,000 $678,000 $4,123,500 $7,401.500 $12,204,000