During 2020, you were hired as the Chief Financial Officer for MC Travel Inc., a fairly young travel

company that is growing quickly. A key accounting staff member has prepared the financial statements,

but there are a couple of transactions that have not been recorded yet because she is waiting for your

guidance regarding how these transactions should be recorded. In addition, the staff member is not

confident in preparing cash flow statements, so you have been asked to prepare statement for

the 2020 year. MC Travel INC. reports under ASPE.

The transactions that have not been recorded yet are as follows.

On January 1, 2018, the company purchased a small hotel property in Miami for $50 million

paying $10 million in cash and issuing a 5% $40 million bond at par to cover

the balance. The bond principal is payable on January 1, 2022. When you were hired, and began to

review the financial information from previous years, you quickly realized that the land portion of the

total purchase price had been capitalized with building, and depreciated. Depreciation has been

incorrectly recorded on the building for 2018 2019 and 2020 , and the land is

still included in the building account. The land portion of the purchase was appraised at $15

million in 2018, and the land is currently worth $17 million. The cost of the property is to be

amortized over a 20 year period using the straight-line basis, and a residual value of $5

million. The company's tax rate is 30% .

During 2020, the president, who is also the principal shareholder in the business, transferred ownership

of a vacant piece of land in the Carribbean to the company. A hotel will be constructed on this property

beginning in 2021. The cost when the president purchased this property was $10 million

and the fair market value, based on the professional appraisal, at the time it was trasferred to the

company was $25 million. The president was issued 50,000 common shares in

exchange for this land. This transaction has not yet been booked.

Additional information that you have gathered to assist in preparing the cash flow statement is as follows:

In 2020, equipment was purchased for $250,000 . In addition, some equipment was disposed of

during the year.

Investment income includes a dividend of $150,000 received on the temporary investment. Interest

income of $106,000 was reinvested in temporary investments.

Following are the financial statements for MC Travel Inc. For 2020 and 2019 fiscal years.

(Please see financial statements on sheet #3)

Instructions:

From the information on the next page, complete the necessary adjusting entries to record the

transactions that have not been booked, and prepare the revised balance sheet and income statement

for the year, keeping in mind that comparative figures will need to be restated. Once this is complete,

prepare statement of cash flows in good form using the indirect method for the year ended December

31, 2020. Assume all transaction amounts have been reported in CAD$.

Hints:

Please set the formulas for restated-updated columns in accordance with the DR or CR character of the account.

Formulize your cells in each spreadsheet, carry the amounts, if necessary from one sheet to another by formulas.

Assume that prior year's accounts are still open for reporting purposes.

Make sure that on Financial Statement pages (page 4 and 6)adjustment columns' debits are equal to credits.

Accumulated Depreciation's ending balance at December 31, 2020 is $5,175,000 . Building and equipment

account'sendingbalanceatDecember31,2020is $40,270,000 . Accordingly please calculate

the disposed-sold equipment's acumulated depreciation written off and how much cash was obtained from the sale.

Complete the entry on page 5.

President's transfer of the land to the company must be done from the fair value in the market.

2019 Adjusting entries should be carried forward (redone) to 2020 in order to update the opening balances in 2020.

Do not include dividents received on your cash flow because it has already been included in your net income (a glitch in the problem).

Go step by step:

1.Do the adjusting entries for 2019 (page 4).

2.Produce the balance sheet for 2019 (page 5).

3.Carry the 2019 adjustments to 2020 to update the opening balances (page 6).

4.Find 2020 adjusting entries and other required balances and entries for 2020 (page 6).

5.Complete financial statements on page 7:

a.Transfer the 2019 restated balance sheet figures to column J.

b.Write 2020 raw balance sheet figures on column E.

c.Write the 2020 raw income statement figures on column E below.

d.Write the adjusting entries to update the 2020 balance sheet and income statement.

e.Obtain the restated-adjusted balances both for balance sheet and income statement for 2020 (page 7).

f.Calculate the differences on balance sheet by substracting 2020 figures from 2019's on column K.

6.Complete the cash flow on page 8. start from restated net income figure on page 7.

7.Please do not forget that your cash balances (January 1 and December 31, 2020) should reconcile to your cash flow statement.

8.Reference column on pages 5 and 7 refers to your adjustmenting entries.

9.Plug in figure on page 6 does not require any entry just add it to Retained Earnings.

1.) Land adjustment entry. And Adjustment for prior year end's accumulated depreciation, income tax payable and retained earnings.

2.) 2019 adjusted financial statement

MC TRAVEL INC. Balance Sheet December 31, $

2019 Adjustments Restated

2019 REF DR CR 2019

ASSETS-Current assets

Cash

Temporary investments

Accounts receivable

Allowance for doubtful accounts

Total current assets

Capital assets

Land 1

Building and equipment 1

Accumulated depreciation 2

Total capital assets

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable

Interest payable

Income taxes payable 2

Dividents payable

Total current liabilities

Long term liabilities

Long term bank loan

Bond payable 5% Miami property due 2019

Future income tax liability

Total long term liabilities

Total liabilities

Shareholders' equity

Common shares

Retained earnings 2

Total shareholders' equity

Total liabilities and shareholders' equity

Difference : Assets - (Liabilities + Shareholders' equity)

3.) Adjustments 2020

Adjustment entries in 2020:

Land adjusting entry carried from last year to update the opening balances in 2020.

Adjustment for prior year end's accumulated depreciation, income tax payable and retained earnings.

Carried in 2020 to update 2019 opening balances.

Depreciation adjusting entry in 2020.

Income tax expense adjustment due to (3) above in 2020.

Owner's transfer of land at fair value in 2020.

Plugged in number to update the Retained Earnings as at December 31, 2020.

Credit adjustment in 2020 Income Statement from entry (3) above :

Debit adjustment in 2020 Income Statement from entry (4) above :

Plugged in number to RE to show the effect of adjustments on net income :

Accumulated depreciation balance at January 1, 2020 :

Depreciation charge for 2020 :

Would be accumulated deprec. balance at January 1, 2020 :

Accumulated depreciation balance given at December 31, 2020 :

Accumulated depreciation debit entry for the equipment sold in 2020 :

Cost of the equipment sold:

Building and equipment balance at January 1, 2020 :

Equipment purchased during the year-2020 :

Building and equipment's would be balance at December 31, 2020 :

Building and equipment's balance-given at December 31, 2020 :

Cost of the equipment sold :

Entry must have been made by the company regarding the equipment disposal-sale:

Cash

Accumulated depreciation of the equipment sold

Cost of the equipment

Gain from sale of the equipment

4.) 2020 adjusted financial statement

MC TRAVEL INC. Balance Sheet December 31, $

2020 Adjustments Restated Restated

2020 REF DR CR 2020 2019 Change

ASSETS-Current assets

Cash

Temporary investments

Accounts receivable

Allowance for doubtful accounts

Total current assets

Capital assets

Land 1+5

Building and equipment 1

Accumulated depreciation 2+3

Total capital assets

Total assets

LIABILITIES AND SHAREHOLDERS' EQUITY

Accounts payable

Interest payable

Income taxes payable 2+4

Dividents payable

Total current liabilities

Long term liabilities

Long term bank loan

Bond payable 5% Miami property due 2019

Future income tax liability

Total long term liabilities

Total liabilities

Shareholders' equity

Common shares 5

Retained earnings 2

Total shareholders' equity

Total liabilities and shareholders' equity

Difference : Assets - (Liabilities + Shareholders' equity)

MC TRAVEL INC. Income Statement For The Year Ended December 31, 2020,$ Restated

2020

Sales

Expenses:

Salaries and wages

Purchases from tour operators

Depreciation expense 3

Office, general, and selling expenses

Bad debt expenses

Interest on long-term debt

Bond interest expense

Total expenses

Income before other income and expenses

Investment income

Gain on sale of equipment

Income before income taxes

Income tax expense 4

Net income

Difference : Debits - Credits

5.) Cash flow

MC TRAVEL INC. Statement of Cash Flows For The Year Ended December 31, 2020,

Net income

Depreciation expense 0

Doubtful receivables written off 0

Bad debt expense

Change in accounts receivable 0

Change in temporary investments

Change in accounts payable

Change in interest payable

Change in income tax payable

Gain on sale of equipment

Change in future income tax liability

Cash flow from operating activities

New equipment purchased

Old equipment sold

Cash flow from investing activities

Change in dividends payable

Change in LT bank loan

Cash flow from financing activities

Total cash increase/(decrease)

Beginning cash balance

Cash increase/(decrease)

Ending cash balance

Ending cash balance - balance sheet

Difference