McMaster, Inc.Balance SheetDecember $31,2018$CashInvestment securities $($reported at market:cost, $$142,000)156,000$Accounts receivable $...$Inventories $......$Allowance for doubtful accounts $...........$$ $550,000$Property and equipmentAccumulated depreciationTotal assetsAccounts payableAccrued expensesNote payable, $5-$year $.$Estimated contingent liability.Common stock, $$10$ par $...\mathrm{.}974,000$UnreaLZea kain on Ivestiment securIies iNet income$ $422\mathrm{.}000850,000$$$2,750,000620,000(300,000)(100,000)$Q Search$ $180,000160,000600,000200,000420,00014.$UU$$During the audit, the following additional information was obtained:$($a$)$ The investment portfolio consists of investments in trading securities with atotal market value of $$156,000$ at December $31.2018.$ The securities werepurchased February $3,2018,$ at a cost of $$142,000.($b$)$ As a result of errors in physical count, inventories were overstated by $$30\mathrm{.}000$at December $31.2018.($c$)$ On January $2,2018,$ the cost of equipment purchased for $$80,000$ wasmistakenly charged to repairs and maintenance. McMaster depreciates this type ofequipment over a $5-$year life using the straight$-$line method, with no residual orsalvage value.$($d$)$ McMaster was named as a defendant in a lawsuit in October $2018.$ McMaster'scOunsel is of the opinion that McMaster has a good defense and does not anticipateany irnpairment of McMaster's assets or that any significant liability will be incurredHowever, McMaster's counsel admits that loss of the suit is "possible." McMaster'smanagement wished to be conservative and established a loss contingency of$$200,000$ at December $31,2018.($e$)$ On January $24,2019,$ before the $2018$ financial statements were issued,McMaster was notified that one of its largest customers had filed for bankruptcy asthe result of a flood that destroyed a substantial portion of the company's assets onCommon stock, $$10$ parAdditional paid$-$in capitalRetained earningsMCMaster, Inc.Total liabilities & owners' equity $..$ $$2,750,000$Income StatementNet sales.For the Year Ended December $31,2018$Operating expenses:Cost of salesSelling & administrativeDepreciation $...$Estimated loss from lawsuit$$2,752,000$Operating income$420,000260,000930,000$Net income$$3,160,000$$$1,510,000984,000$Q Search$58,000200,000$Unrealized gain on investment securities$.$$ $408,000$$ $422,00014,000$the result of a flood that destroyed a substantial portion of the company's assets onJanuary $16,2019.$ The customer's accounts receivable balance at December $31,2018,$ was $$144,000.($f$)$ $$100,000$ of $5-$year notes payable will mature September $30,2019.$ In view ofMcMaster's plans for expansion, management is seriously considering refinancing thenotes when they become due.$(1)$ Prepare a properly classified balance sheet for McMaster, Inc., as of December$31,2018.($Income tax considerations should be ignored.$)(2)$ ldentify the events and other information that should be disclosed in the notesto McMaster's financial statements. $($Prepare the notes you believe should bedisclosed.$)$