Question 3 (35 marks) The following information as at the year-end date is extracted from the Freddy Corporation's financial statements: Cash Accounts receivable Allowance for doubtful accounts Inventory Prepaid expenses Land Buildings Buildings - Accumulated depreciation Machinery Machinery- Accumulated depreciation Leased equipment Leased equipment - Accumulated depreciation 2019 (5) 95,000 92,000 (4.500) 155,000 7,500 90.000 287,000 (32,000) 50,000 (30,000) 28,594 (9.531) 729.063 December 31 2018 ($) 27,000 80,000 (3.100) 175.000 6,800 60,000 244,000 (13,000) 60,000 (25,000) 611.700 84,000 63.000 Accounts payable Accrued liabilities Lease payable Interest payable Bonds payable Share capital-ordinary Retained earnings 90.000 54.000 18,594 930 125,000 100,000 340,539 729.063 60,000 92.000 312,700 611.700 Net income Depreciation expense - Buildings Depreciation expense - Machinery Depreciation expense - Leased equipment Cash dividends declared and paid Gain or loss on sale of Machinery For the year 2019 $47,839 19.000 5,000 9,531 20.000 None Additional information: * On 1 January 2019, Freddy leased an equipment, with an economic useful life of ten years, from Flower Company for three years. The present value of the minimum lease payment and the fair value of the leased equipment were $28.594 and $95.313 respectively. Annual lease payment of $10,000 has to be made at the beginning of each period. The lease agreement offers Freddy an option of purchasing the leased equipment at Sl at the end of the lease period. (6 marks) (b) Prepare a Statement of Cash Flows for the year ended 31 December 2019 for Freddy Corporation using the indirect method (assuming dividends and interest paid are classified as financing activities). (24 marks) (c) Goods, which costs $1,500, were not included in the physical count of inventory by Freddy. They were shipped from a supplier FOB shipping point on 29 December 2019, and did not arrive until 3 January 2020. Assuming that the purchase was properly recorded while the omission of the inventory could only be discovered after the 2019 financial statements were issued, i analyze the effect (over/understate) of this omission on 2019 costs of goods sold, net income and retained earnings, and prepare the adjusting entries accordingly
