3. Business transactions and the balance sheet: 19 marks Optimus Prime is the owner (a sole-trader) and manager of Shockwave Company. The business has become quite successful and needs to obtain an extra bank loan so that they can extend the current working space. As part of the loan application, Optimus Prime was asked to prepare a balance sheet and he prepared the following statement, but believes that there could be errors. He has asked for your help before submitting the statement to the bank. Shockwave Company Balance Sheet as at 31 August 2019 Assets Cash 28,000 Accounts Receivable 2,400 Prepaid insurance 1,800 Inventory 32,800 Working space 100,000 Equipment 5,000 Total assets $170,000 Liabilities and equity Loan payable Optimus Prime capital Total liabilities and equity 100,000 70,000 $170,000 After reviewing many documents and after several hours of discussion with Optimus Prime, you have discovered the following facts: 1. The asset cash indudes the balances of all bank accounts, both business related and personal. Optimus Prime's personal bank account has a balance of $2,000, Shockwave Company has exported some products to a client for $20,000 in June, and the cost of the inventory was $12,000. The cash has not be received for this so Shockwave Company has not recorded anything relating to this $20,000. Shockwave Company received $10,000 from a customer at the beginning of August, but the products will not be shipped until the end of October. Optimus Prime recorded the cash amount of this transaction correctly but nothing else. Shockwave Company purchased inventory from an overseas supplier at a cost of $8,000 on credit. The goods were received in July but the supplier allow the firm to delay payment until the end of September. Nothing has been recorded for this transaction. The working space that Optimus Prime is looking at purchasing has market value of $100,000. He would like to record his property plant and equipment at market value. The balance of loan payable is $100,000, which is the amount of financing that Optimus Prime is seeking this time. 2 The owner removed some inventory and gave them to his friends as gifts. The cost of the Inventory was $500 and Nothing has been recorded for this transaction. Assignment 01 Questions DUE DATE: Thursday 16 January 2020 11am Required: (a) For Items numbered 1 to 7. fill in the table in the answer booklet. State the name of the Balance Sheet account(s) that are incorrect AND explain why the amount(s) is incorrect in the Balance Sheet. (Ignore GST and any impact on the other financial statements as this is not in scope of this assignment). (10 marks) (b) Given all the mistakes that Optimus Prime has made, you think you should take the initiative and prepare the balance sheet for him in the correct form. Use the information in items numbered 1 to 7 as well as your explanations given in part A. (Treat the balance of the "Optimus Prime capital account as a "plug and make the balance sheet balanced finally). (9 marks)