Laura Smith owns a brand name clothing store. The business has been doing well and making good profit. Following is the balance sheet of the store on 31 December 2019.

Lauras Clothing Store

Balance Sheet

31 December 2019

Cash	$8,750
Shop equipment (net)	22400
Inventory	33,250
Accounts receivable	10,500
Total Assets	$74,900
Accounts payable	$15,750
Owners equity, capital	59,150
Total Liabilities and Owner's Equity	$74,900

On 2 January 2020 Laura went to her bank to get a loan for her business. The bank agreed to loan her $17,500 under the following conditions. First, the note payable would be a three-year note, so the business would repay $17,500 plus $5,250 interest on 31 December 2022. Second, she must prepare a forecasted classified income statement for 2020 to show that the business expects to earn a net income of at least $38,500 and that it will have satisfactory profit margin and return ratios. Third, she must prepare a forecasted cash flow statement for 2020 that shows the business expects to have cash on hand at the end of 2020 of at least $35,000 (including the cash from the bank loan) and that it will have satisfactory operating cash flow ratios. Finally, she must prepare a forecasted classified balance sheet as of 31 December 2020, that shows a current ratio of at least 3.0 and debt ratio of no more than 40%. Laura has never prepared any forecasted financial statements. She understands, however, that they are prepared using the best estimates she can make, based on the shops previous operations and her future expectations. Laura has come to you for help with the following information.

(a)Sales for 2020 are expected to be $280,000. Of these, half will be cash sales and half credit

sales. There are no cash discounts. Of the credit sales, 10% will not be collected until 2021. The accounts receivable on 31 December 2019 will be collected in 2020.

(b) Purchases of inventory for 2020 are expected to be $175,000. All purchases are on credit; there are no cash discounts. Of the purchases, 12% will not be paid until 2021. The accounts payable on 31 December 2019 will be paid in 2020.

(c) Sales returns and purchases returns are expected to be insignificant.

(d) The businesss gross profit percentage has been 40% of sales, and this rate is expected in 2020.

(e) The shop rents space in a local shopping center. The rent is $700 per month; the rent for the whole year is due on 6 January 2020.

(f) The shop equipment that originally cost $28,000 has a 10-year estimated life, after which it is expected to have no value.

(g) Laura pays her one salesperson a basic salary of $24,500 per year, plus 10% of gross sales. The total salary for 2020 will be paid in cash by the end of the year.

(h) Laura expects to withdraw $28,000 during 2020 to cover personal living expenses.

(i) Other operating expenses are expected to be $5,600 in 2020; these will be paid in cash by the end of the year.

You determine that the information Laura has gathered is reasonable and includes her best estimates.

Required:

1-Prepare a forecasted classified statement of comprehensive income (income statement) for 31 December 2020 and show supporting calculations.

2-Prepare a forecasted cash flow statement for 31 December 2020. Use the direct method for operating cash flows and show supporting calculations.

3-Prepare a forecasted classified statement of financial position (balance sheet) as of 31 December 2020 and show supporting calculations.

4-Now, assume you are playing the role of the auditor for Lauras Clothing Store. Consider how would you audit each FSLI (financial statement line item) above such as cash, equipment, inventory, etc. Please explain your testing strategy and the justification for each line item. (Note: This is a research based assignment)