The Niakwa Industries prepared the following statement of earnings and comparative statement of financial position for 2020: NIAKWA INDUSTRIES Statement of Earnings For the Year Ended December 31, 2020 Net sales $1,900,000 Cost of sales 980.000 Gross profit 920,000 Operating expenses Depreciation expense-- property, plant and equipment 200,000 Amortization expense patents 27,000 Other operating expenses 197,000 Earnings from operating activities 496,000 Non-operating activities Interest expense Loss on sale of land Net earnings before income tax Income tax (30%) Net Earnings 160,000 100,000 236,000 70.800 $ 165,200 NIAKWA INDUSTRIES Comparative Statement of Financial Position December 31, 2020 2020 2019 Assets Current Assets Cash Accounts Receivable Investments Inventory Total Current Assets $ 405,200 180,000 460,000 2.336.000 3,381,200 $ 200,000 350,000 320,000 2.090.000 2,960,000 Non-Current Assets Property, Plant, and Equipment Less: Accumulated Depreciation Patents, net Total Non-Current Asets Total Assets 880,000 (760,000) 192,000 312,000 $3,693,200 800,000 (560,000) 219.000 459,000 $3,419.000 Liabilities and Shareholders' Equity Current Liabilities Accounts Payable Accrued Payables Dividends Payable Income Taxes Payable Total Current Liabilities $ 389,000 160,000 80,000 27,000 656,000 $ 265,000 240,000 80,000 42.000 627,000 Non-Current Liabilities Note Payable (Long-Term) Bonds Payable Total Non-Current Liabilities Total Liabilities 180,000 900.000 1,080,000 1,736,000 560,000 400.000 960,000 1,587,000 Shareholders' Equity Common Shares Retained Earnings Total Shareholders' Equity Total Liabilities & Shareholders' Equity 1,600,000 357,200 1,957,200 $3,693,200 1,600,000 232,000 1,832,000 $3,419,000 Additional information: 1. Equipment was purchased for $400,000 cash in 2020. 2. Cash dividends of $40,000 were paid in 2020. 3. Land was sold for $220,000 cash in 2020. 4. Changes in the note payable and bonds payable accounts were through cash transactions. 5. Any additional transactions were non-cash transactions and can be ignored for this question. Required: Prepare a complete Statement of Cash Flows for 2020 using the indirect method for the operating section. Ignore supplementary disclosure. Journal Entries This question consists of two independent parts. 1. A gym's sales of annual memberships for $40,000 have been included in Membership fees revenue. This amount was received on July 1, 2020 for memberships which are valid from July 1, 2020 to June 30, 2021. Examine whether it is appropriate to include the entire $40,000 in revenues for the year ended December 31, 2020. If it is appropriate provide justification. If it is not appropriate, explain why and prepare the required journal entry to adjust the accounts. 2. Wellefson Equipment Company sells computers for $2,000 each and also gives each customer a 1- year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold for cash 500 computers that had a cost of $700 each. Based on past experience, the company has estimated warranties to be 3% of sales. During 2020, the Company reimbursed customers for 10 defective computers, which were returned to the manufacturer. Record the journal entries to reflect the above transactions (accrual method) for 2020. Assume sales are on a cash basis and that a perpetual inventory system is used