Heidis Bakery Pty Ltd operates a small pastry business. The company has always maintained a complete and accurate set of accounting records since its incorporation, thanks to the diligent accountant. Unfortunately, the companys accountant left in a dispute with the Chief Executive Officer (CEO) and took the set of 2020 financial statements with her in protest. The following statements of financial position and income were prepared by the companys CEO:

Heldi's Bakery Pty Ltd.

Statement of Financial Position, As at December 31, 2020

Assets Liabilities and Shareholders' Equity N$ N$

Cash

Buildings and

3,700 Pastry Revenue Equipment 60,000 Credit Sales 22,100 Less: Notes Payable (40,000) Shareholders Capital 30,000 Land 50,000 Less: Net Loss (900)

Retained Earnings 22,500

73,700 73,700

Heldi's Bakery Pty Ltd.

Statement of Income,

For the Year Ended December 31, 2020

N$ N$

Revenues:

Accounts Receivables 15,500

Pastry revenue - cash sales 23,700 39,200

Expenses:

Dividends 5,600

Accounts Payable 6,800

Utilities 9,500

Salaries and Wages 18,200 40,100

(900)

The president is very disappointed with the net loss for the year because net income has averaged N$ 21,000 over the last ten years. He has asked for your help in determining whether the reported net loss accurately reflects the profitability of the company and whether the balance sheet is prepared correctly.

The actual amount of retained earnings on January 1, 2020, was N$ 39,900.

Required

1. Prepare a corrected income statement for the year ended December 31, 2020.
2. Prepare a statement of retained earnings for the year ended December 31, 2020. (The December 31, 2020, Retained Earnings balance shown is incorrect. The CEO simply plugged in this amount to make the statement of financial position balance.)
3. Prepare a corrected balance sheet at December 31, 2020.
4. Draft a memo to the president explaining the major differences between the income

statement he prepared and the one you prepared.