Question 3 (40 marks) Happy Farm Limited started operation on 1 December 2019. The accountant prepared the following Adjusted Trial Balance at 31 December 2019. However, the accountant had not adjusted for the depreciation and income tax. Happy Farm Limited Adjusted Trial Balance 31 December 2019 Debit Credit Cash $40,000 Inventory $24,000 Accounts receivable $9.900 Prepaid rent $8,000 Unexpired insurance $9,600 Office supplies $600 Rental equipment $240,000 Notes payable $100,000 Accounts payable $700 Uneamed rental fees $3,200 Dividends payable $2,000 Interest payable $500 Share capital - ordinary $40,000 Share premium ordinary $160,000 Dividends $2,000 Sales $60,200 Cost of goods sold $21,000 Salaries expense $9,300 Maintenance expense $600 Utilities expense $700 Interest expense $500 Office supplies expense $400 $366,600 $366,600 Required a) Suppose Happy Farm Limited purchased all rental equipment by cash on the first day of business, with estimated useful life of 8 years and residual value of $3,000. It uses doubic declining balance method with partial year depreciation rounded to the nearest full month. Prepare the adjusting entry of depreciation as at 31 December 2019. (3 marks) b) Prepare the income statement and statement of retained camings for the year ended 31 December 2019. Assume an income tax rate of 40% (9 marks) c) Prepare the statement of financial position as at 31 December 2019. (12 marks) (Detailed information about the ordinary shares like authorized, issued and outstanding is not required in this part.) Page 8 of 9 d) Suppose that Happy Farm Limited started operation on 1 December 2019 with authorization of 50,000 shares of $10 par value ordinary shares and 1,000 1% cumulative preference shares of $100 par value. Happy Farm had following transactions in 2020. 10 Jan Issued 500 preference shares for $120,000 cash 31 Jan Repurchased 1,000 ordinary shares for a total of $50,000 26 Feb Reissued 400 treasury shares at $52. 5 Jun Reissued 200 treasury shares at $48. i) Record the above transactions in 2020. ii) Happy Farm Limited had net income of $84,000 in the year ended 31 December 2020. It declared a dividend $1.6 per outstanding ordinary share and the 1% preference shares' dividend on 30 November 2020, payable on 31 January 2021. Prepare the shareholders' equity section in Happy Farm Limited's statement of financial position at 31 December 2020, according to the format required in IFRS. (8 marks) - End of Section B - *** End of Paper Page 9 of 9