QUESTION 1 (10 marks)

You are the loan officer of a multinational bank. A small company, Samson Company, would like to apply for a loan. In support of the loan application, Samson Chan, owner, submitted a Trial Balance for the first year of operations ended on December 31, 2019.

You have asked the company to submit other financial statements that include Income Statement, Statement of Financial Position and Cash Flow Statement for evaluating the performance of the company.

Samson Company

Trial Balance

December 31, 2019

Supplies	6,400
Machinery	187,300
Equipment	68,000
Cash	20,500
Share capital		160,000

Salaries paid	121,000
Utilities paid	8,000
Rent paid	130,000
Insurance paid	9,920

Service revenue received 391,120

551,120 551,120

In discussing the Trial Balance with Samson Chan, you asked whether adjusting entries have been prepared to get the accounts up to date for the Trial Balance. Samson Chan answered that they have not been adjusted.

Required:

1. Explain why the bank would need to read other financial statements such as Income

Statement, Statement of Financial Position and Cash Flow Statement. (3 marks)

2. Explain why the loan officer suspected that the accounts had not been adjusted prior to the preparation of the Trial Balance. (3 marks)
3. Indicate FOUR possible adjusting entries that might be necessary before an accurate set of financial statements could be prepared. (4 marks)