Suppose you have organized another business under the name “PAPA’s Hotel & Restaurant” on December 1, 2019. In order to compete in market, you have decided to avail financing from Azizi Bank for further expansion. Bank requires list of documents including financial statements for further process. The business transactions during the month of December are as follows:

Dec 01: You have invested cash of $2,500,000 in your business, PAPA’s Hotel & Restaurant.

Dec 01: Purchased hotel building for $550,000. Made a $180,000 cash down payment and issued a note payable for balance amount.

Dec 01: You have agreed with Unilever Corporation to provide meeting hall and charge fixed

revenue of $5,000 per month. The entire six-month rent revenue of $30,000 was collected in advance and credited to Unearned Rent Revenue.

Dec 01: Purchased food items for restaurant on credit $10,000

Dec 10: Received cash of $80,000 from customers as rent revenue from customers.

Dec 15: Paid $10,000 salary to employees for services during first half of December.

Dec 18: Purchased restaurant supplies of $2,500 on account.

Dec 31: Paid cash $10,000 for food items purchased on Dec 01.

Dec 31: You withdrew $5,000 cash from the business for personal use.

As you are following accrual basis of accounting so adjustments are needed as at December 31, 2019. The information regarding adjustments is as follows:

1. Salaries earned by employees but not paid amount to $10,000 for second half of Dec.
2. As of Dec. 31, you have earned $20,000 rent revenue but not received any amount yet.
3. On Dec 1, entire six-month rent revenue of $30,000 was collected in advance and credited to Unearned Rent Revenue. As at December 31, adjustment is needed.
4. A Toyota Corolla car had been rented on Dec 09, at daily rate of $80 to provide transportation facility. No rental payment has yet been made.
5. Depreciation on Hotel’s building is based on an estimated useful life of 15 years. The original cost of building was $550,000 and residual value of $50,000.

Instructions:

1. Prepare financial statements (balance sheet & income statement) as at December 31, 2019 based on above information as it is the compulsory requirement of Azizi bank.
2. Evaluate financial position and profitability of your business?
3. If you have applied for financing of $250,000, whether you are qualified against the collateral of hotel building as at December 31, 2019?