QUESTION 4 [20 Marks] Answer the two following unrelated question shown below PART A [15 Marks] The following information was obtained from the accounting records and financial statements of Sun & Fun Corporation, a wholesaler that specializes in selling printers for computers. Assets Cash Accounts receivable Inventory Investment SUN & FUN CORPORATION Comparative Balance Sheets November 30 2018 2017 $180,000 $150,000 560,000 490,000 410,000 516,000 260,000 200,000 1,120,000 (600,000) 120,000 $2,050,000 $ 524,000 370,000 1,200,000 (520,000) 170,000 $ 2,206,000 $600,000 500,000 720,000 800,000 356,000 $2,050,000 386,000 $ 2,206,000 Machinery and equipment Accumulated depreciation Goodwill Liabilities and shareholders' equity Accounts payable-Trade Long-term debt Ordinary shares Retained earnings SUN & FUN CORPORATION Sales Cost of goods sold Gross profit Salaries and wages expense Interest expense Other expenses Income Statement year ended November 30, 2018 $ 6,400,000 4,800,000 1,600,000 (960,000) (110,000) (330,000) 60,000 30,000 (50,000) $ 240,000 Investment revenue: share of earnings of associate Gain on disposal of machinery and equipment Loss on impairment of goodwill Net income Additional information i. Sun & Fun sold display machinery and equipment that had an original cost of $80,000 and net book value of $60,000. There were no purchases of machinery and equipment. ii. Depreciation expense is included as part of SUN's "other expenses." iii. Sun & Fun declared and paid cash dividends on November 1, 2018. iv. V. Sun & Fun's investment in associate represents an investment in 30% of the shares of Moon made several years ago. Moon has never paid dividends. Sun & Fun has assessed goodwill for impairment since it was recorded in 2016. During 2018, Sun & Fun determined that the fair value of goodwill had decreased by $50,000. Required a) Prepare the cash flow statement, using the indirect method, for SUN for the year ended November 30, 2018. [15 Marks] Page 5 QUESTION 4 Continued PART B [5 Marks] TURN OVER The trial balance before adjustment of Sandel Corporation reports the following balances: Accounts receivable Allowance for doubtful accounts Sales (all on credit) Sales returns and allowances Required a) b) Dr. $100,000 Cr. $ 2,500 750,000 40,000 Prepare the entries to record bad debt expense if doubtful accounts are estimated to be (i) 6% of gross accounts receivable and (ii) 1% of net sales. [3 Marks] Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $2,500 instead of a credit balance. How will this difference affect the journal entries in part (a)? [2 Marks]