Question

The method ofsolution requires indirect method.

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During 2020, you were hired as the Chief Financial Officer for MC Travel Inc., a fairly young travel company that is growing quickly. A key accounting staff member has prepared the financial statements, but there are a couple of transactions that have not been recorded yet because she is waiting for your guidance regarding how these transactions should be recorded. In addition, the staff member is not confident in preparing cash flow statements, create the statement for the 2020 year. MC Travel INC. reports under ASPE.

The transactions that have not been recorded yet are as follows.

1) On January 1, 2018, the company purchased a small hotel property in Miami for $50 million paying $10 million in cash and issuing a 5% $40 million bond at par to cover the balance. The bond principal is payable on January 1, 2022. When you were hired, and began to review the financial information from previous years, you quickly realized that the land portion of the total purchase price had been capitalized with building, and depreciated. Depreciation has been incorrectly recorded on the building for 2018 2019 and 2020 , and the land is still included in the building account. The land portion of the purchase was appraised at $15 million in 2018, and the land is currently worth $17 million. The cost of the property is to be amortized over a 20 year period using the straight-line basis, and a residual value of $5 million. The company's tax rate is 30% .

2) During 2020, the president, who is also the principal shareholder in the business, transferred ownership of a vacant piece of land in the Carribbean to the company. A hotel will be constructed on this property beginning in 2021. The cost when the president purchased this property was $10 million and the fair market value, based on the professional appraisal, at the time it was trasferred to the company was $25 million. The president was issued 50,000 common shares in exchange for this land. This transaction has not yet been booked.

Additional information that you have gathered to assist in preparing the cash flow statement is as follows:

1) In 2020, equipment was purchased for $250,000 . In addition, some equipment was disposed of during the year.

2) Investment income includes a dividend of $150,000 received on the temporary investment. Interest income of $106,000 was reinvested in temporary investments.

Following are the financial statements for MC Travel Inc. For 2020 and 2019 fiscal years.

Adjusting Entries :

a) Land adjusting entry.

B) Adjustment for prior year end's accumulated depreciation, income tax payable and retained earnings.

Instructions:

From the information on the next page, complete the necessary adjusting entries to record the transactions that have not been booked, and prepare the revised balance sheet and income statement for the year, keeping in mind that comparative figures will need to be restated.

Once this is complete, create a statement of cash flows in good form using the indirect method for the year ended December 31, 2020. Assume all transaction amounts have been reported in CAD$.

Hints:

1)Please set the formulas for restated-updated columns in accordance with the DR or CR character of the account.

2) Formulize your cells in each spreadsheet, carry the amounts, if necessary from one sheet to another by formulas. Assume that prior year's accounts are still open for reporting purposes.

3) Make sure that on Financial Statement pages (page 4 and 6)adjustment columns' debits are equal to credits.

4)Accumulated Depreciation's ending balance at December 31, 2020 is $5,175,000 . Building and equipment

account'sendingbalanceatDecember31,2020is $40,270,000 . Accordingly please calculate the disposed-sold equipment's accumulated depreciation written off and how much cash was obtained from the sale. .

5)President's transfer of the land to the company must be done from the fair value in the market.

6) 2019 Adjusting entries should be carried forward (redone) to 2020 in order to update the opening balances in 2020.

7)Do not include dividends received on your cash flow because it has already been included in your net income (a glitch in the problem).

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MC TRAVEL INC. Note: The statement ijustme 2020 2019 ASSETS-Current assets Cash 7,600,000 5,040,000 Temporary investments 2,006,000 1,900,000 Accounts receivable 5,000,000 3,700,000 Allowance for doubtful accounts -200,000 -100,500 Total current assets 14,406,000 10,539,500 Capital assets Land 250,000 250,000 Building and equipment 55,270,000 55,072,000 Accumulated depreciation -7,425,000 -4,950,000 Total capital assets 48,095,000 50,372,000 Total assets 62,501,000 60,911,500 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable 3,800,800 1,100,750 Interest payable 30,000 15,000 Income taxes payable 350,000 250,000 Dividents payable 100,000 Total current liabilities 4.180,800 4,465,750 Long term liabilities Long term bank loan 1,145,000 Bond payable 807,000 40,000,000 Future income tax liability 40,000,000 Total long term liabilities 175,000 150,000 40 957 100

Future Income tax liability Total long term liabilities 41,320,000 40,957,000 Total liabilities 45,500,800 45,422,750 Shareholders' equity Common shares 1,000,000 1,000,000 Retained earnings 16,000,209 14,488,750 Total shareholders' equity 17,000,200 15,488,750 Total liabilities and shareholders' equity 62,501,000 60,911,500 Difference : Assets - (Liabilities + Shareholders' equity) 0 0 MC TRAVEL INC. Income Statement For The Year Ended December 31, 2020, $ Sales 37,500,000 Expenses: Salaries and wages 5,000,000 Purchases from tour operators 22,500,000 Depreciation expense 2,500,000 Office, general, and selling expenses 3,489,800 Bad debt expenses 150,000 Interest on long-term debt 30,000 Bond interest expense 2,000,000 Total expenses 35,669,800

MC TRAVEL INC. Income Statement For The Year Ended December 31, 2020.$ Sales 37,500,000 Expenses: Salaries and wages 5,000,000 Purchases from tour operators 22,500,000 Depreciation expense 2,500,000 Office, general, and selling expenses 3,489,800 Bad debt expenses 150,000 Interest on long-term debt 30,000 Bond interest expense 2,000,000 Total expenses 35,669,800 income before other income and expenses 1,830,200 Investment income 256,000 Gain on sale of equipment 73,000 Income before income taxes 2,159,200 Income tax expense 647,750 Net income 1,511,450 Accumulated Depreciation's ending balance at December 31, 2020 is $5,175,000. Building and equipment account's ending balance at December 31, 2020 is $40,270,000. Accordingly please calculate the disposed-sold equipment's accumulated depreciation written off and how much cash was obtained from the sale. Adjustment entries