Top Cake shop was established on 1 April 2019 with an initial investment of $100,000 by the owner (Jack Claff). During the first few weeks of business, the owner employed a part-time book-keeper who recorded the following list of accounts:

Accounts payable$37,100

Buildings100,000

Cash at bank31,000

Furniture12,000

Jack Claff - Capital150,000

Baking Supplies5,600

Loan payable 20,700

Accounts receivable20,000

Land43,200

Mortgage payable40,000

Cash drawings by Jack Claff36,000

Required:

a.Assuming that the amounts above are correct, prepare a statement of financial position in vertical format illustrated on page 56, Example 2.3. (show your calculations) (4 marks)

b.Prepare a statement of changes in equity for the period and determine the amount of profit (loss) made by the business during the period of its first few weeks of existence, assuming that the owner had invested an additional $20,000 into the business just before the above amounts were calculated by the book-keeper. (must show your calculations) (3 marks)

c.Why is it that, in an entity's financial statements, assets leased by an entity are sometimes shown on that entity's balance sheet even though those assets are not legally owned? Explain. You should disclose the source of your information by referencing and support your statements by research and readings. (3 marks)

QUESTION 2 (10 Marks)

The following transactions were undertaken by ABC Pty Ltd during the financial year ended 30 June 2019.

1.Sold for $12,000 used machinery with a carrying amount of $75,000.

2.Issued ordinary shares for cash, $300,000.

3.Purchased land to be held for future expansion for $220,000.

4.Paid off a long-term $90,000 loan plus interest of $8,000.

5.Purchased machinery, giving $50,000 cash and signing a mortgage loan for $90,000.

6.Purchased shares in A Ltd to be held as an investment for $100,000 cash.

7.Sold a long-term government bond, with a carrying amount of $45,000, for $56,000, including $5,000 accrued interest.

8.Purchased shares in Rouge Ltd to be held as a long-term investment, paying $170,000 cash.

9.Issued 7% debentures for $500,000

10.Paid cash dividends of $60,000

Required:

a.Prepare the net cash flow used in investing activities section of the statement of cash flows. Must show your calculations (3 marks)

b.Prepare the net cash flow used in financing activities section on the statement of cash flows. Must show your calculations (3 marks)

c.What are the limitations of a statement of cash flows? Explain. You must disclose the source of your information by referencing and support your statements by readings and research. (4 marks)