The method of solution requires indirect method. 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, so you have been asked to prepare this 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 poillion, Daving $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 jocorrectly 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% 2During 2020, the president, who is also the principal shareholder in the business, transferred ownership of a vacant piece of land in the Caribbean to the company. A hotel will be constructed on this properts 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 trastered 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.jacome of $106,000 was reinvested in temporary investments. Following are the financial statements for MC Travel Inc. For 2020 and 2019 fiscal years. (Please see financial statements on sheet #3) Instructions: From the information on the next page, complete the necessary adjusting entries to record the transactions that have not been booked, and prepare the revised balance sheet and income statement for the year, keeping in mind that comparative figures will need to be restated. Once this is complete prepare a statement of cash flows in good form using the indirect method for the year ended December 31, 2020. Assume all transaction amounts have been reported in CAD$. 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 4,100,750 Interest payable 30,000 15,000 Income taxes payable 350.000 250,000 Dividents payable 0 100,000 Total current liabilities 4,180,800 4,465,750 Long term liabilities Long term bank loan 1,145,000 807,000 Bond payable (5% Miami property due 2019) 40,000,000 40,000,000 Future income tax liability 175,000 150,000 Total long termo 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 16,000,200 14,488,750 Total shareholders' equity 17,000,200 15,488,750 Total liabilities and shareholders' equity 62,501,000 60,911,500 DifferenceAssets - (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 Income before other income and expenses 1,830,200 Investment income 256,000 Gain on sale of equipment 73,000 - Income tax expense Net income Difference: Debits - Credits 647,750 1,511,450 CR 2019 2. MC TRAVEL INC. Balance Sheet December 31, $ 2019 Adjustments Restated 2019 REF DR ASSETS-Current assets Cash Temporary investments Accounts receivable Allowance for doubtful accounts Total current assets Capital assets Land Building and equipment Accumulated depreciation Total capital assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable Interest payable Income taxes payable Dividerts payable Total current liabilities Long term liabilities Long term bank loan Bond payable 5% Miami property due 2019 Future income tax liability Total long term liabilities Total liabilities Shareholders' equity Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity Difference Assets - (Liabilities + Shareholders' equity) 3. Adjustments 2020 Adjustment entries in 2020: Land adjusting entry carried from last year to update the opening balances in 2020. 1) Adjustment for prior year end's accumulated depreciation, income tax payable and retained earnings. Carried in 2020 to update 2019 opening balances. 2) Depreciation adjusting entry in 2020. 3) Income tax expense adjustment due to (3) above in 2020. 4) Owner's transfer of land at fair value in 2020. 5) Plugged in number to update the Retained Earnings as at December 31, 2020. Credit adjustment in 2020 Income Statement from entry (3) above Debit adjustment in 2020 Income Statement from entry (4) aborsi Plugged in number to RE to show the effect of adjustments on net income Accumulated depreciation balance at January 1, 2020 Depreciation charge for 2020 Would be accumulated serces, balance at January 1, 2920i Accumulated depreciation balance given at December 31, 2920 Accumulated depreciation debit entry for the equipment sold in 2020 Cost of the equipment sold: Building and equipment balance at January 1, 2920 Equipment purchased during the year-2920 Building and equipment's would be balance at December 31, 2020 Building and equipment's balance-given at December 31, 2920 Cost of the equipment soldi Cost of the equipment soldi Entry must have been made by the company regarding the equipment disposal-sale: Cash Accumulated depreciation of the equipment sold Cost of the equipment Gain from sale of the equipment Adjustment entries in 2020: MC TRAVEL INC. Statement of Cash Flows For The Year Ended December 31, 2020, Net income Depreciation expense Doubtful receivables written off Bad debt expense Change in accounts receivable Change in temporary Investments Change in accounts payable Change in interest payable Change in income tax payable Gain on sale of equipment Change in future income tax liability Cash flow from operating activities New equipment purchased Old equipment sold Cash flow from investing activities Change in dividends payable Change in LT bank loan Cash flow from financing activities Total cash increase/(decrease) Beginning cash balance Cash increase/ decrease) Ending cash balance Ending cash balance - balance sheet Difference The method of solution requires indirect method. 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, so you have been asked to prepare this 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 poillion, Daving $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 jocorrectly 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% 2During 2020, the president, who is also the principal shareholder in the business, transferred ownership of a vacant piece of land in the Caribbean to the company. A hotel will be constructed on this properts 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 trastered 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.jacome of $106,000 was reinvested in temporary investments. Following are the financial statements for MC Travel Inc. For 2020 and 2019 fiscal years. (Please see financial statements on sheet #3) Instructions: From the information on the next page, complete the necessary adjusting entries to record the transactions that have not been booked, and prepare the revised balance sheet and income statement for the year, keeping in mind that comparative figures will need to be restated. Once this is complete prepare a statement of cash flows in good form using the indirect method for the year ended December 31, 2020. Assume all transaction amounts have been reported in CAD$. 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 4,100,750 Interest payable 30,000 15,000 Income taxes payable 350.000 250,000 Dividents payable 0 100,000 Total current liabilities 4,180,800 4,465,750 Long term liabilities Long term bank loan 1,145,000 807,000 Bond payable (5% Miami property due 2019) 40,000,000 40,000,000 Future income tax liability 175,000 150,000 Total long termo 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 16,000,200 14,488,750 Total shareholders' equity 17,000,200 15,488,750 Total liabilities and shareholders' equity 62,501,000 60,911,500 DifferenceAssets - (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 Income before other income and expenses 1,830,200 Investment income 256,000 Gain on sale of equipment 73,000 - Income tax expense Net income Difference: Debits - Credits 647,750 1,511,450 CR 2019 2. MC TRAVEL INC. Balance Sheet December 31, $ 2019 Adjustments Restated 2019 REF DR ASSETS-Current assets Cash Temporary investments Accounts receivable Allowance for doubtful accounts Total current assets Capital assets Land Building and equipment Accumulated depreciation Total capital assets Total assets LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable Interest payable Income taxes payable Dividerts payable Total current liabilities Long term liabilities Long term bank loan Bond payable 5% Miami property due 2019 Future income tax liability Total long term liabilities Total liabilities Shareholders' equity Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity Difference Assets - (Liabilities + Shareholders' equity) 3. Adjustments 2020 Adjustment entries in 2020: Land adjusting entry carried from last year to update the opening balances in 2020. 1) Adjustment for prior year end's accumulated depreciation, income tax payable and retained earnings. Carried in 2020 to update 2019 opening balances. 2) Depreciation adjusting entry in 2020. 3) Income tax expense adjustment due to (3) above in 2020. 4) Owner's transfer of land at fair value in 2020. 5) Plugged in number to update the Retained Earnings as at December 31, 2020. Credit adjustment in 2020 Income Statement from entry (3) above Debit adjustment in 2020 Income Statement from entry (4) aborsi Plugged in number to RE to show the effect of adjustments on net income Accumulated depreciation balance at January 1, 2020 Depreciation charge for 2020 Would be accumulated serces, balance at January 1, 2920i Accumulated depreciation balance given at December 31, 2920 Accumulated depreciation debit entry for the equipment sold in 2020 Cost of the equipment sold: Building and equipment balance at January 1, 2920 Equipment purchased during the year-2920 Building and equipment's would be balance at December 31, 2020 Building and equipment's balance-given at December 31, 2920 Cost of the equipment soldi Cost of the equipment soldi Entry must have been made by the company regarding the equipment disposal-sale: Cash Accumulated depreciation of the equipment sold Cost of the equipment Gain from sale of the equipment Adjustment entries in 2020: MC TRAVEL INC. Statement of Cash Flows For The Year Ended December 31, 2020, Net income Depreciation expense Doubtful receivables written off Bad debt expense Change in accounts receivable Change in temporary Investments Change in accounts payable Change in interest payable Change in income tax payable Gain on sale of equipment Change in future income tax liability Cash flow from operating activities New equipment purchased Old equipment sold Cash flow from investing activities Change in dividends payable Change in LT bank loan Cash flow from financing activities Total cash increase/(decrease) Beginning cash balance Cash increase/ decrease) Ending cash balance Ending cash balance - balance sheet Difference