Mr Smith and Mr Jones run a wholesale business selling coffee and biscuits to coffee shops. The business is incorporated under the name of Smith and Jones Ltd, and they are the only shareholders. As the business is small, they do not employ a full-time accountant, but pay a local firm to prepare their accounts after the end of the accounting period from information they supply. You are on a summer work placement with this firm and have been asked to prepare a first draft of the financial statements for Smith and Jones Ltd for the year ending 31 December 2010. A list of opening balances at 1 January 2010 is set out below: 45,000 2,700 Shop premises: cost Shop premises: accumulated depreciation Fixtures and fittings: cost Fixtures and fittings: accumulated depreciation Inventories of coffee and biscuits at cost 10,000 3,000 34,680 Trade receivables 31,200 Allowance for trade receivables 780 400 Prepayments Trade payables Accruals (miscellaneous) 5,570 1,000 Bank overdraft 5,000 Bank loan repayable in 2014 Share capital: 1 ordinary shares Retained profits 27,000 50,000 26,230 Further information: a. The shop premises were acquired under a 50 year lease on 1 January 2007 and are being depreciated to a zero residual value. b. The fixtures and fittings were also bought on 1 January 2007 and are being depreciated over 10 years to a zero residual value. c. Depreciation is provided on a straight line basis for both the shop premises and the fixtures and fittings. d. The business pays its insurance premium annually on 1 July to cover the following twelve month period. This is the only prepayment at 1 January 2010. An allowance of 2.5% for trade receivables is maintained. e. During the year to 31 December 2010, the following transactions/events took place (in no particular order): 1. The business made cash sales of 85,900. It also made credit sales of 61,430. 2. Inventory costing 75,780 was bought during the year. All items were bought on credit. Suppliers were paid 77,150 over the course of the year. The inventory at 31 December 2010 cost 27,500. 3. During the year some fixtures that had cost 2,000 when purchased were sold for 1,700. New fixtures were acquired at a cost of 3,000 and were paid for in cash. No depreciation is provided in the year of disposal but a full year's depreciation is provided in the year of acquisition. 4. Mr Smith and Mr Jones received directors' salaries of 1,000 per month each. 5. The accruals at 1 January 2010 were paid in February 2010. 6. Receipts from credit customers totalled 54,530. No bad debts had been written off during the year. However, of the amounts due from credit customers at the end of the year, 1,500 had been outstanding for more than six months and was considered unlikely to be collected as the customers concerned were not replying to correspondence. The directors have decided to continue to maintain an allowance of 2.5% for trade receivables, after writing off the uncollectable amounts. 7. Electricity invoices (bills) totalling 1,830 relating to the current period were paid during the year. The company has recently changed its energy supplier and is now being billed quarterly in arrears. At the end of December 2010 the bill for the quarter ended on 31 January 2011 had not yet been received, but was estimated to be 690. 8. The insurance premium for the year to 30 June 2011 was paid on 1 July 2010. The amount paid represented a 5% increase from the prior year premium. Required: Prepare an income statement for the company for the year ended 31 December 2010, and a statement of financial position as at that date. Show your workings.