JOKEMON INC. Monica, a history major, is in a financial predicament and requires your expert accounting advice with respect to a business she has started recently. Jokemon Inc. ("Jokemon") was incorporated on October 1, 2000, under Canadian federal corporate legislation. Monica is the sole shareholder, owning 100% of the common shares of the company. Jokemon develops, manufactures, and distributes a unique stuffed animal and other toys named Jokemon. The company has grown very rapidly since inception, capitalizing on the recent boom in the home entertainment market. Monica informs you that the success of this industry is linked directly to the state of the economy and, more specifically, to the levels of personal disposable income.

The industry is also fiercely competitive, with thousands of toy developers and producers worldwide targeting the same market as Jokemon. Monica says "it seems that new toys are popping up on the market each day." From this, you determine that the development of new, high-quality toys is crucial for the long-term survival of Jokemon. To entice and retain her employees, Monica has offered certain key staff bonuses based on the net income of the company.

Monica informs you that the company is almost out of cash. Unless it can access cash immediately, it will not be able to fund further product development. She also informs you that her personal bank account is empty and that she has approached her bank for financing. Monica desperately needs your advice. Financial statements must be prepared for the bank. Attached is the adjusted trial balance of Jokemon for the year that ended September 30, 2001.

Jokemon Inc. Adjusted Trial Balance as at September 30, 2001 Debt Cash Credit $ 1,000 Accounts receivable 80,000 Research and development costs 70,000 Inventory 185,000 Unexpired insurance 1,400 Property, computer hardware/software* 200,000 Selling, general, and administration 182,900 Bad debts expense 12,000 Amortization expense 30,000 Interest expense 16,000 Income tax expense 3,525 Cost of goods sold 255,000 Sales Common shares $ 515,000 Accumulated amortization 30,000 Allowance for doubtful accounts 50,000 Loan due to shareholder 12,000 Accounts payable & accrued liabilities 200,000 Retained earnings 160,300 Interest payable 50,000 Income taxes payable 16,000 Total 3,525 $ 1,036,825 $ 1,036,825 *At historical cost. Fair market value is estimated at $150,000