TAKE HOME ASSIGNMENT DUE FEB 19TH 2021 The following information is taken from the financial statements and audit working papers of ABC Inc.for its fiscal year ended December 31, 2020. The company is involved in buying and reselling widgets. ABC Inc. Condensed Unaudited Income Statement For the Year Ended December 31, 2020 Sales $16,050,000 Cost of goods sold (14,050,000) Gross profit $ 2,000,000 Selling expenses $975,000 General and administrative expenses 495.000 (1.470.000) Net income from operations $ 530,000 Gain on sale of assets (Note 15) 44,000 Investment Income (Note 16) 50,000 Net income before taxes 624,000 Provision for income taxes - current $120,000 future 110.000 (230.000) Net income after tax $ 394.000 The following items were deducted in arriving at the above net income: 1. The company accrued $10,000 for a potential liability due to a lawsuit brought about by an ex- employee. The case might be settled in 2021. 2. The company expects new competitive products to affect their margins, so they decided to set up a reserve for a decline in the inventory value in the amount of $25,000. They have never set up this kind of reserve before. 3. Charitable donations were made in the amount of $9,000. 4. The sales manager incurred expenses related to meals and entertainment at a golf club in the amount of $2,300. 5. The salesman received a car allowance of 60c per km. He drove a total of $15,000 business km during the year 2020. 6. Management bonuses of $92,000 was expensed for the year ($25,000 was paid on December 31, 2020 and the balance was paid on July 1, 2021). 7. In order to raise money for expansion, the company mortgaged the real estate it used in the business. The bank charged $10,000 mortgage application fees. The mortgage has a 10-year term and a 30-year amortization period. 8. A number of years ago, the company issued a bond at a discount. They have been amortizing this discount at the rate of $7,000 per year ever since, including this year