The method of solution requires indirect method. In 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 paying 5% $50 million $10 million in cash and issuing a $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 and still included in the building account. The land portion of the purchase was appraised at million in 2018, and the land is currently worth $17 million. The cost of the property is to be amortized over a year period using the straight-line basis, and a residual value of 30% 20 million. The company's tax rate is 2018 2019 2020 , and the land is $15 $5 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 50,000 common shares in 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 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 during the year. 2) Investment income includes a dividend of $250,000. In addition, some equipment was disposed of $150,000 received on the temporary investment. Interest income of $106,000 was reinvested in temporary investments. Following are the financial statements for MC Travel Inc. For (Please see financial statements on sheet #3) 2020 and 2019 fiscal years. Instructions: From the information on the next page, complete the necessary adjusting entries to record the transactions that have not been booked, and prepare the revised balance sheet and income statement for the year, keeping in mind that comparative figures will need to be restated. Once this is complete, prepare a statement of cash flows in good form using the indirect method for the year ended December 31, 2020. Assume all transaction amounts have been reported in CAD$. Hints: Please set the formulas for restated-updated columns in accordance with the DR or CR character of the account. 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. Make sure that on Financial Statement pages (page 4 and 6)adjustment columns' debits are equal to credits. Accumulated Depreciation's ending balance at December 31, 2020 is account's ending balance at December 31, 2020 is $5,175,000 Building and equipment $40,270,000 . Accordingly please calculate the disposed-sold equipment's acumulated depreciation written off and how much cash was obtained from the sale. Complete the entry on page 5. President's transfer of the land to the company must be done from the fair value in the market. 2019 Adjusting entries should be carried forward (redone) to 2020 in order to update the opening balances in 2020. Do not include dividents received on your cash flow because it has already been included in your net income (a glitch in the problem). Go step by step: 1.Do the adjusting entries for 2019 (page 4). 2.Produce the balance sheet for 2019 (page 5). 3.Carry the 2019 adjustments to 2020 to update the opening balances (page 6). 4.Find 2020 adjusting entries and other required balances and entries for 2020 (page 6). 5.Complete financial statements on page 7: a. Transfer the 2019 restated balance sheet figures to column J. b.Write 2020 raw balance sheet figures on column E. c. Write the 2020 raw income statement figures on column E below. d. Write the adjusting entries to update the 2020 balance sheet and income statement. e.Obtain the restated-adjusted balances both for balance sheet and income statement for 2020 (page 7). f.Calculate the differences on balance sheet by substracting 2020 figures from 2019's on column K. 6.Complete the cash flow on page 8. start from restated net income figure on page 7. 7.Please do not forget that your cash balances (January 1 and December 31, 2020) should reconcile to your cash flow statement. 8.Reference column on pages 5 and 7 refers to your adjustmenting entries. 9.Plug in figure on page 6 does not require any entry just add it to Retained Earnings. Please add your group names into the first sheet with class section, Only one student can upload to Blackboard. All the group will get the same marks please do not submit the project by email. MC TRAVEL INC. Balance Sheet December 31, Note: The statements before any adjustments. 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 Dividents payable Total current liabilities Long term liabilities 2020 2019 7,600,000 5,040,000 2,006,000 1,900,000 5,000,000 3,700,000 -200,000 -100,500 14,406,000 10,539,500 250,000 55,270,000 250,000 55,072,000 -7,425,000 -4,950,000 48,095,000 50,372,000 62,501,000 60,911,500 3,800,800 4,100,750 30,000 350,000 15,000 250,000 100,000 4,180,800 4,465,750 Long term bank loan 1,145,000 Bond payable 5% Miami property due 2019 40,000,000 807,000 40,000,000 Future income tax liability 175,000 Total long term liabilities 41,320,000 150,000 40,957,000 Total liabilities Shareholders' equity 45,500,800 45,422,750 Common shares 1,000,000 1,000,000 Retained earnings Total shareholders' equity 16,000,200 14,488,750 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 Expenses: Salaries and wages Purchases from tour operators Depreciation expense Office, general, and selling expenses Bad debt expenses 37,500,000 5,000,000 22,500,000 2,500,000 3,489,800 150,000 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 Net income 647,750 1,511,450 Adjustment entries in 2020: 1) Land adjusting entry carried from last year to update the opening balances in 2020. $15 2) $15 Adjustment for prior year end's accumulated depreciation, income tax payable and retained earnings. Carried in 2020 to update 2019 opening balances. Depreciation adjusting entry in 2020. 3) 4) Income tax expense adjustment due to (3) above in 2020. 5) Owner's transfer of land at fair value in 2020. $1 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) above: 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 deprec. balance at January 1, 2020 : Accumulated depreciation balance given at December 31, 2020: Accumulated depreciation debit entry for the equipment sold in 2020 : Cost of the equipment sold: Building and equipment balance at January 1, 2020 : Equipment purchased during the year-2020 : Building and equipment's would be balance at December 31, 2020 : Building and equipment's balance-given at December 31, 2020 : Cost of the equipment sold: 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 0 0 No marks, a MC TRAVEL INC. Balance Sheet December 31, $ ASSETS-Current assets Cash Temporary investments Accounts receivable 2020 Adjustments 2020 REF DR 7,600,000 2,006,000 5,000,000 CR Restated 2020 Restated 2019 Change 7,600,000 5,040,000 2,560,000 1 mark 2,006,000 1,900,000 106,000 5,000,000 3,700,000 1,300,000 -200,000 -100,500 14,406,000 10,539,500 3,866,500 1 mark 1 mark -99,500 1 mark Allowance for doubtful accounts Total current assets Capital assets Land Building and equipment Accumulated depreciation -200,000 14,406,000 250,000 1+5 15,000,000 55,270,000 1 15,000,000 -7,425,000 2+3 Total capital assets Total assets 48,095,000 62,501,000 LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable 3,800,800 Interest payable 30,000 Income taxes payable 350,000 2+4 Dividents payable 0 Total current liabilities 4,180,800 Long term liabilities 15,250,000 1 mark 40,072,000 1 mark -3,600,000 1 mark 51,722,000 62,261,500 4,100,750 1 mark 15,000 1 mark 655,000 1 mark 100,000 1 mark 4,870,750 Long term bank loan 1,145,000 1,145,000 Bond payable 5% Miami property due 2019 40,000,000 40,000,000 807,000 40,000,000 338,000 1 mark 0 1 mark Future income tax liability 175,000 175,000 Total long term liabilities 41,320,000 41,320,000 150,000 40,957,000 25,000 1 mark 363,000 45,500,800 45,827,750 Total liabilities Shareholders' equity Common shares Retained earnings Total shareholders' equity Total liabilities and shareholders' equity Difference: Assets - (Liabilities + Shareholders' equity) 1,000,000 5 16,000,200 2 17,000,200 62,501,000 0 1,000,000 1 mark 15,433,750 1 mark 16,433,750 62,261,500 0 MC TRAVEL INC. Income Statement For The Year Ended December 31, 2020, $ Sales Expenses: Salaries and wages Purchases from tour operators Depreciation expense Office, general, and selling expenses Bad debt expenses Interest on long-term debt Bond interest expense Total expenses Income before other income and expenses Investment income Gain on sale of equipment Income before income taxes Income tax expense Net income Difference: Debits - Credits 3 Restated 2020 1 mark 1 mark 1 mark 1 mark 1 mark 1 mark 1 mark 1 mark 111 mark mark mark 4 1 mark 28 marks MC TRAVEL INC. Statement of Cash Flows For The Year Ended December 31, 2020, Net income 1 mark Depreciation expense 1 mark Doubtful receivables written off 1 mark Bad debt expense 1 mark Change in accounts receivable 1 mark Change in temporary investments 1 mark Change in accounts payable 1 mark Change in interest payable 1 mark Change in income tax payable 1 mark Gain on sale of equipment 1 mark Change in future income tax liability 1 mark Cash flow from operating activities New equipment purchased 1 mark Old equipment sold 1 mark Cash flow from investing activities Change in dividends payable 1 mark Change in LT bank loan 1 mark Cash flow from financing activities Total cash increase/(decrease) 1 mark Beginning cash balance 1 mark Cash increase/(decrease) 1 mark Ending cash balance 1 mark 19 marks Ending cash balance-balance sheet Difference