Mustang Company reported the following financial information for its first year of operations. Below are the financial statements for the year ended December 31, 2019: Assets Current Assets Cash Accounts Receivable Less: Doubtful Accounts Inventory Prepaid Expenses Total Current Assets Mustang Company Balance Sheet As At December 31, 2019 Property. Plant & Equipment Land Building Less: Accumulated Amortization Equipment Less: Accumulated Amortization Total Property Plant and Equipment Total Assets Liabilities & Owner's Equity Current Liabilities Accounts Payable Wages Payable Mortgage Payable - Current Portion Total Current Liabilities Long Term Liabilities Mortgage Payable Total Liabilities Owner's Equity J. Mustang, Capital Total Liabilities & Owner's Equity $52 000 3.750 $80 000 8.000 40 000 8.000 Mustang Company $5 660 48 250 146 410 3 200 200 000 72 000 32.000 $77 000 2 350 20.000 $203 520 304.000 $507 520 $99 350 220.000 319 350 188 170 $507 520 Revenue Sales Cost of Goods Sold Gross Profit Operating Expenses Wages Depreciation Equipment Depreciation - Building Interest Bad Debts Miscellaneous Net Income ii) Income Statement. Year Ended December 31, 2019 ii) Additional Information Relating to the Income Statement: 1) Cost of Goods Sold has been calculated as follows: Cost of Goods Available for Sale: $346 000 Less: Ending Inventory 146 410 Cost of Goods Sold 199 590 The record of purchases and sales during 2019 show the following: 6.000 units @ $11 4 000 units @ $25 iii) January Sales - Jan to April May Sales - May to August September Sales - Oct to Dec $375 000 199 590 Purchases Sales Purchases Sales Purchases Sales $65 800 8.000 8 000 7 200 3.750 24.000 Additional Information Relating to the Balance Sheet: i) 10 000 units @ $13 5 000 units @ $25 10 000 units @ $15 6 000 units @ $25 $175 410 116.750 $58 660 The estimated useful life of the equipment is 10 years or 20,000 hours of usage with a residual value of $5,000. The company used the equipment for 4,571 hours during the first year. The estimated useful life of the building is 10 years with a salvage value of $12,000. The accounts receivable aging schedule is as follows: Number of Days Outstanding 0-30 days 31-60 days 61-90 days Over 90 days Estimated % Uncollectible 1% 5% 10% 30% Amount $30,000 12,000 8.000 2,000 J. Mustang has consulted you because of his dissatisfaction with the financial results for the year. Mr. Mustang is hoping you can recast the financial statements to show the business in a better in a better financial position. Required: 1. Determine the accounting policies used in the preparation of the financial statements with regard to Cost of Goods Sold and Depreciation Expense. Show all calculations. 2. Provide an alternative value for Cost of Goods Sold and Depreciation Expense. Explain how you arrived at these values. Show all calculations. 3. The bad debt expense reported on the Income Statement was calculated by using the percentage of sales approach. Using the aging schedule provided above, determine an alternate amount for bad debt expense. 4. Which of the accounting methods for inventory, capital assets and bad debt expense will result in a better financial position for the company? Explain by revising the financial statement balances and determine new values for net income, assets, liabilities and owner's equity. 5. Which of the accounting methods for inventory, capital assets and bad debt expense will result in a better cash flow for the company? Explain.