Financial Accounting: Assets

Question 1 (15 marks)In this question, you will need to prepare and “post” transactions that occurred during the month of November for Mutianyu & Badaling (M&B) Engineers Assoc. Ltd. The company’s fiscal year is October 1 to September 30.

Problem descriptionThe following transactions took place in November 20X5:

November 1 John Mutianyu and Mary Badaling each invested €9,000 in the company and each received 9,000 no par value ordinary shares in return. Share certificate numbers 3 and 4 were issued.

November 1 Issued cheque #169 to pay for one month’s rent of €1,800 for furnished office space.

November 1 Paid the premium on a one-year insurance policy of €1,250 with cheque #170. The term of the policy runs from December 1, 20X5, to November 30, 20X6.

November 9 Purchased a computer for €3,500 with cheque #171.November 15 Paid the semimonthly salary of €950 to an administrative assistant

with cheque #172.November 18 Purchased computer supplies of €450 with cheque #173. Assume

these supplies will be used up by the end of the month.November 25 Completed a consulting project and collected €5,237 as a

consulting fee from a client. Sales invoice #301 was issued.November 30 Paid the semimonthly salary of €950 to an administrative assistant

with cheque #174.November 30 Paid €1,250 for the month of November’s security/alarm

protection with cheque #175.November 30 Paid €300 for November utilities with cheque #176.November 30 Recorded monthly depreciation of €500 for computers.

The trial balance as of November 1, 20X5, follows:

Trial balanceAs at November 1, 20X5

Bank €8,050Accounts receivable 26,421Prepaid expenses 5,000Office equipment 53,271Accumulated depreciation — office equip. €11,000Accounts payable 22,349Accruals 3,260Miscellaneous payable 376Shareholders’ loans 22,000Ordinary shares 5,000Retained earnings 24,246Consulting fees 26,550Accounting and legal expense 905

Depreciation expense 1,000Computer supplies expense 880Insurance expense 1,000Office and general expense 202Rent expense 4,600Salaries expense 9,950Utilities expense 1,200Income tax expense 1,550

114,405 114,405

RequiredSubmit a trial balance as of November 30, 20X5.

Note: To properly answer the question, you need to first create the appropriate journal entries. The second step is to “post” them to T-accounts. The third step is to generate the trial balance.

Question 2 (29 marks)Multiple choice (1 mark each)a. Which of the following best describes accounting income?

1) Income is measured as the amount of “real wealth” that an entity could consume during a period and be as well off at the end of that period as it was at the beginning.

2) Market values adjusted for the effects of inflation or deflation are used to calculate real wealth.

3) Income is calculated as a function of the revenue and matching principles.4) Income equals the change in market value of the firm’s outstanding ordinary

stock for the period.

b. Which of the following would be true if a functional approach is used in the preparation of an income statement?

1) Expenses are presented based on their nature or character.2) Extraordinary items are included separately from profit from ordinary

activities.3) Expenses are presented based on the purpose within the organization.4) All expenses are presented as a one-line item.

c. A textile manufacturer with only one plant sustained a loss when it moved to another location. It has not relocated in 20 years and has no plans to do so again in the foreseeable future. How should this loss be treated?

1) As an extraordinary item2) As part of normal operations3) As a loss from continuing operations4) As an unusual expense

d. Which of the following defines the initial disclosure event for the disposal of a component of an enterprise?

1) The date that operations cease (if disposal is by abandonment)2) The date that the enterprise makes a formal commitment to dispose of the

component3) The last day of the fiscal year in which the decision to dispose is made4) The date that the assets are sold

e. An enterprise failed to record deprecation on a piece of equipment for two years. The oversight was discovered in the current period. How should the company account for the depreciation expense for the two missed years?

1) As an adjustment to opening retained earnings 2) As a loss of the current period3) As part of depreciation expense for the current year4) As a direct adjustment to shareholders’ equity

f. How should a change in accounting estimate related to the useful life of a building be accounted for?

1) By retroactive application with restatement of prior periods2) Retroactive application with no restatement of prior periods3) As an adjustment to income in the year of the change in estimate4) As an adjustment to income in the current and future years

g. An enterprise made a decision to change from the straight-line method to the double declining method of accounting for depreciation on its equipment as this would present depreciation in a more relevant manner. This change would be accounted for in which of the following ways?

1) Record as an adjustment to opening retained earnings for the impact of the change in depreciation on prior years’ profit.

2) Record the impact of the change on prior year’s depreciation expense in depreciation expense of the current year.

3) Ignore the impact of the change on prior year’s depreciation expense and account for the change for the current and future years only.

4) An enterprise cannot change accounting policies, as it will then be in contravention of the consistency principle.

h. Which of the following is normally included in the current asset section of a balance sheet?

1) Investments in which the enterprise exerts significant control over the investee 2) Patents that have a remaining useful life of ten years 3) Amount receivable on a loan receivable that is in arrears4) A receivable from a customer not collectible for over one year

i. Which of the following statements is true with respect to the net asset format of financial statement presentation?

1) The balance sheet is presented in a manner which focuses on the accounting equation in the form A = L + OE

2) The balance sheet is presented in a manner which focuses on the accounting equation in the form A – L = OE

3) The balance sheet is presented in a manner which focuses on the accounting equation in the form A – OE = L

4) The balance sheet is presented in a manner which focuses on the accounting equation in the format A = L – OE

j. Which of the following is not one of the purposes of the notes to the financial statements?

1) To provide further information about items included in the financial statements

2) To provide information about items which do not qualify for recognition but for which failure to disclose would be misleading

3) To provide information about accounting policies and measurement bases4) To provide information about the future plans of the enterprise

k. Which of the following would usually be classified in a different major section of the balance sheet than the other items?

1) Share investment in another enterprise2) Stock dividend issuable3) Share capital4) Accumulated profits

l. Which of the following would give rise to a discontinuing operation?

1) The decision to sell an unprofitable plant2) The decision to close a plant destroyed by fire3) The expropriation of a enterprise’s operations in a foreign jurisdiction4) The decision to sell an unprofitable division

m. A company receives an advance payment for special order goods that are to be manufactured and delivered within six months. The advance payment should be reported in the company’s balance sheet as which of the following?

1) Deferred charge2) Contra asset account3) Current liability4) Current asset

n. Certain items on the financial statements must be presented net of tax. Which of the following items should not be presented net of tax?

1) Changes in accounting estimates2) Errors3) Discontinuing operations4) Changes in accounting policy

o. How should the account receivable of an individual customer with a credit balance of a material amount be reported?

1) It should be included in the liability section of the balance sheet.2) It should be deducted from the debit balances in other customers’ accounts on

the balance sheet.

3) It should be shown under “credit balances of customers’ accounts” in the current asset section of the balance sheet.

4) It should be omitted from assets or liabilities on the balance sheet.

(2 marks each)p. A company that lost part of its accounting system in a fire is having trouble

determining what its profit is for the current year. The following correct adjusted balances and additional information for the current year are available:

Balances at Jan. 1 Balances at Dec. 31

Total assets €10,000 €27,000Total liabilities 3,000 8,000

Additional information for the year:

Correction of profit of a prior year (profit wasunderstated) 2,000

Cash dividends declared and distributed 7,000

Other than the events listed above, no other events or transactions affected owners’ equity in the current year. What was the profit for the current year?

1) €3,0002) €15,0003) €17,0004) €19,000

q. A review of the December 31, 20X6, financial statements of a corporation revealed a separate line item in the income statement in the amount of €130,000. Further analysis revealed that the €130,000 in losses was comprised of the following items:

i. A loss of €25,000 was incurred in the abandonment of equipment formerly used in the business.

ii. A loss of €37,500 was sustained as a result of damage to a warehouse by a falling meteorite.

iii. During 20X6, several factories were shut down during a major strike by employees. Shutdown expenses totalled €60,000.

iv. Uncollectible accounts receivable of €7,500 were written off as uncollectible.

Ignoring income taxes, what would be the total of the items that should have separate disclosure on the 20X6 income statement?

1) €25,0002) €37,5003) €67,5004) €130,000

r. On May 1, 20X5, a company with a year end of December 31 purchased insurance, covering the next three years, for €10,800. The entire amount was debited to insurance expense at that time. On January 10, 20X7, the error was discovered. The average income tax rate was 40%. Which of the following should be the adjustment to retained earnings at the beginning of 20X7 (including its tax effect)?

1) A credit of €2,8802) A debit of €2,8803) A debit of €3,2404) A credit of €3,240

s. The following items relate to Scents 4 Cents Ltd. for the year ending December 31, 20X7:

i. Corrected an error in the amount of €40,000; the error correction was to expense an amount incorrectly treated as an asset

ii. Recorded a change in accounting principles which increased prior years income by €50,000

iii. Declared €30,000 of dividends to its shareholdersiv. Changed accounting estimates relating to the depreciation of several of its assets;

if these estimates had been used from the beginning, previous years’ income would have been lower by €30,000

v. Earned €80,000 after income taxes

By what amount did the firm’s total retained earnings change for the year?

1) Increased €10,0002) Increased €30,0003) Increased €60,0004) Increased €90,000

t. ABC Corporation prepared the following balance sheet:

ABC CORPORATIONBalance Sheet

as at December 31, Year 1

Assets Shareholder’s Equity

Equipment (net) €16,000 Ordinary shares €26,000Accounts receivable 18,000 Retained earnings 4,000Allowance for

doubtful accounts ?Cash 4,000 LiabilitiesTotal assets € ? Notes payable 2,000

Accounts payable 2,000 Total equities € 34,000

What was the balance in the allowance for doubtful accounts?

1) A credit of €4,0002) A debit of €4,0003) A credit of €12,0004) A debit of €12,000

u. A corporation had the following account balances as at December 31, 20X4:

Ordinary shares.................................................................................. €1,000,000Preference shares............................................................................... 760,000Bonds payable.................................................................................... 500,000Retained earnings............................................................................... 250,000Bond sinking fund.............................................................................. 80,000

Additional information:

The above accounts do not reflect a €50,000 cash dividend on preference shares and a €50,000 stock dividend on ordinary shares that were declared and paid during the year.

What was the total shareholders’ equity at December 31, 20X4?

1) €1,910,0002) €1,960,0003) €2,040,0004) €2,590,000

v. In January 20X5, Fashion Enterprise acquired some equipment on the second hand market for €60,000. The company thought they got a great deal on the equipment and recorded the purchase as €80,000 which is what they felt they would have had to pay if they had made the purchase from a more knowledgeable seller. They depreciated the equipment using a useful life of five years and zero salvage value. In January of 20X6, the company felt that they had made an error in estimating salvage value as zero and changed the estimate to €5,000. The company’s tax rate is 40%.

What adjustment, if any, would be required to January 1, 20X6, retained earnings?

1) € 02) €2,4003) €4,0004) €5,000

Question 3 (21 marks)The following Income Statement and Accumulated Profit Statement was prepared by Rorre Enterprise’s accountant.

RORRE ENTERPRISEIncome StatementDecember 31, 20X5

Revenue income € 620,000Gain on sale of silk contracts (Note 1) 30,000

650,000Expenses

Depreciation (Note 2) € 100,000Cost of sales (Note 3) 220,000Other (Note 4) 300,000

Dividends 60,000 (580,000 )Income (Note 5) € 70,000

RORRE ENTERPRISEAccumulated Profit Statement

December 31, 20X5Balance beginning of year € 780,000

Profit 70,000Loss from flood damage (Note 6) € 60,000Error in estimating bad debt expense (Note 7) 40,000 (100,000 )

Balance end of year € 750,000

Notes:

1. In June of 20X5, the company, a textile manufacturer, entered into irrevocable fixed price contracts to purchase enough silk to meet production needs for 20X6. The price of silk increased dramatically over the summer due to a shortage on world markets. In September the company’s designers decided to make last minute changes to next year’s product line with the result that less silk will be required than originally anticipated. In October the company sold its excess silk contracts to other manufacturers, realizing a gain of €30,000 on the sale. This is the third time in the last four years that Rorre Enterprises has been able to sell excess contracts at a profit.

2. In December the bookkeeper noticed that he had failed to record depreciation on the company’s vehicles and certain production equipment for the three-year period 20X3 to 20X5. The vehicles and equipment were being depreciated over eight years using a straight-line rate of €15,000 per year. The bookkeeper added the €45,000 to depreciation expense for the current year.

3. In late December 20X4, Rorre sold Pag Retail goods costing €30,000 for €60,000. The sale was appropriately recorded in 20X4 but the goods were included in the inventory count at December 31, 20X4, because they had not yet been delivered to the customer.

4. Included in other expenses is a loss of €30,000 on closure of operations. The company had operations in Canada, which it closed in September 20X5. The sales and operating expenses for the Canadian operation up to the date of closure were as follows:

Sales € 160,000 Less:Cost of sales 55,000Depreciation 16,000Other expenses 119,000

190,000 Loss € (30,000 )

5. The accountant failed to consider taxes. The company’s tax rate is 40%.

6. A freak spring flood caused a great deal of damage to the company’s manufacturing facilities and inventory. This is the first flood the area has experienced since records

started to be maintained. The company’s insurance covered all of the loss except for €60,000.

7. The company uses the allowance method to determine bad debt expense. During 20X5, the accountant performed a study and determined that the company should have been providing for bad debts at a rate of 4% of sales instead of 3%. As a result, the company had underprovided for bad debts by a total of €40,000 in prior years.

Required1. (16 marks)

Prepare, in good form, the income statement for Rorre Enterprise. The company had 20,000 ordinary shares outstanding for the entire year.

2. (5 marks)

Prepare, in good form, the statement of changes in shareholders’ equity for Rorre Enterprise as it relates to accumulated profits.

Question 4 (22 marks)Each of the following describes situations that a company may encounter.

1. A company experienced a €250,000 loss due to a fire caused by a lightning strike. The company is in an area subject to lightning strikes.

2. A company’s major supplier of raw materials experienced a prolonged strike. As a result, the company could not obtain the materials necessary to manufacture its product and had to write off €100,000 of inventory. This is the first time the company has incurred a loss due to raw material shortages. However, strikes are not unusual in the industry.

3. A company purchased machinery that cost €90,000 three years ago. The estimated useful life was 12 years, and the estimated residual value was €80,000. The straight-line method of depreciation has been used. At the end of the current year, the company’s accountant decided that the machine should be depreciated over a 16-year total life and the estimated residual value should be €10,000.

4. Six months into the fiscal year, a company decided to discontinue the operations of its retail division, which qualifies as an identifiable business segment. The division was sold three months before the end of the year for €312,000 cash. The book value of the assets of this division equalled €360,000. The division had a before tax operating loss of €40,000 for the current year to the date of sale.

5. During the year a company laid off five workers who no longer had the skills required to work for the company. In order to avoid a wrongful dismissal lawsuit, the company paid the employees €80,000 as severance pay. In turn, the employees agreed not to take any legal action against the company.

6. A company’s accountant failed to record depreciation expense on the company’s fleet of delivery vehicles for the last two years.

7. A parcel of company land with a cost of €200,000 was expropriated by the local government for use in the construction of a new highway. The company received €500,000 for land.

Required1. Briefly define and describe the accounting treatment for each of the following:

i. Errorii. Change in accounting policyiii. Change in accounting estimateiv. Income or expenses not part of ordinary operationsv. Discontinued operations

2. For each situation described above state whether it would be found in the income statement, the statement of changes in shareholders’ equity or that it would not be found in either statement. In addition, state the specific classification that would be used if the item would be included in the income statement or the statement of changes in shareholders’ equity.

(8 marks for requirement 1; 14 marks for requirement 2. Of the 8 marks for requirement 1, 2 marks will be awarded for writing skills — that is, proper sentence structure, grammar, spelling, and so on.)

Question 5 (13 marks)The following alphabetical adjusted trial balance is available for Goquick Delivery Services for the year ended December 31, 20X5.

GOQUICK DELIVERY SERVICESAdjusted Trial Balance

December 31, 20X5

DR CR

Accounts payable € 136,000Accounts receivable € 294,900Accumulated depreciation — Property, plant & equipment 409,100Accumulated profits, January 1, 20X5 244,000Cash 83,400Depreciation expense 137,100Dividends 40,000Correction of error 120,000Income tax on ordinary activities 31,350Income tax on error correction 36,000Income tax payable 67,350Interest expense 42,000Interest payable 21,300Note payable (due June 20X9) 400,000Other operating expenses 248,400Prepaid rent 13,500Property, plant & equipment 1,179,900Salary expense 628,000

Salaries payable 9,300Rent expense 120,000Revenue 1,317,700Share capital 300,000Supplies 9,700Unearned revenue 45,200Utilities expense 37,700 Totals € 2,985,950 € 2,985,950

Additional information:

1. During the year the company’s accountant noted that €120,000 of 20X5 revenue had been recorded as revenue in 20X4 instead of being treated as unearned revenue for that year. A retroactive correction was made to deal with the error.

2. The company will make principal payments, on the note payable, in the amount of €100,000 during 20X6.

RequiredPrepare the following statements, in good form, for Goquick Delivery Services for 20X5.

1. (6 marks)

Statement of changes in shareholders’ equity, accumulated profits section.

2. (7 marks)

Balance sheet, using the current/non-current format.

Suggested solutions

Question 1 (3/4 mark each, maximum 15 marks)Trial balance

As at November 30, 20X5

Bank €20,837Accounts receivable 26,421Prepaid expenses 6,250Office equipment 56,771Accumulated depreciation – office equip. €11,500Accounts payable 22,349Accruals 3,260Miscellaneous payable 376Shareholders’ loans 22,000Ordinary shares 23,000

100

Retained earnings 24,246Consulting fees 31,787Accounting and legal expense 905Depreciation expense 1,500Computer supplies expense 1,330Insurance expense 1,000Office and general expense 1,452Rent expense 6,400Salaries expense 11,850Utilities expense 1,500Income tax expense 1,550

138,142 138,142

Note:Students may set up a separate asset account for the computer purchase or include it in Office equipment as shown in the solution. November’s security/alarm protection expense has been included in Office and general expense but some students may create a separate account for this expense.

Question 2 (29 marks)Multiple choice (1 mark each)a. 3)

In accounting, revenue is recognized using the revenue principle and expenses are recognized using the matching principle.

b. 3)

The functional approach presents operating expenses based on their purpose within the organization.

c. 2)

The relocation is part of normal operations (however infrequent) and as such, this relocation would be shown as part of ongoing activities. Note that extraordinary items no longer exist according to IAS 1.

d. 2)

It may take some time after the decision is made until all assets are sold and the operations cease. Income from discontinued operations is disclosed separately from the initial disclosure event onwards.

e. 1)

The enterprise should have recorded depreciation for the two years. This would qualify as an error, which would be accounted for by an adjustment to opening retained earnings.

f. 4)

Since the change relates to a building, depreciation expense will be adjusted over the remaining life of the building. Therefore income will be adjusted for the current and future years.

g. 1)

Changes in accounting policy are treated retroactively. Therefore, any change to prior years’ depreciation expense would be treated as an adjustment to opening retained earnings.

h. 3)

The loan receivable is in arrears; therefore it would be treated as a current asset because it is already past due.

i. 2)

The net asset form of preparing the balance sheet focuses on the accounting equation in the form A – L = OE.

j. 4)

The management discussion and analysis may make reference to future plans but this would not be contained in the notes to the financial statements.

k. 1)

The investment is an asset while the other items are all components of shareholders’ equity.

l. 4)

The sale of a division would represent a separate line of business.

m. 3)

The advance payment is in respect of goods that will be delivered with in six months; it therefore represents a current liability.

n. 1)

Changes in accounting estimates are included as a part of operating profit from normal activities and as such are not presented net of tax.

o. 1)

A credit balance in accounts receivable represents a liability to the customer.

(2 marks each)p. 3)

(€27,000 – €8,000) – €2,000 – (€10,000 – €3,000) + €7,000

q. 2)

Items (i) and (iii) and (iv) are not clearly distinct from ordinary operations. However, one would not expect to be hit by a meteorite as a normal course of events. As such, it is the only item that should have separate disclosure — although items (i) and (iii) might if they are material.

r. 1)

[€10,800 – (€10,800/36 20)] (1 – 0.4)

s. 3)

– €40,000 + €50,000 – €30,000 + €80,000. The change in accounting estimate is only reflected in current and future earnings.

t. 1)

(€16,000 + €18,000 + €4,000) – €34,000

u. 2)

€1,000,000 + €760,000 + €250,000 – 50,000

v. 2)

(€80,000 – €60,000) 5 × 0.6. They would have to correct for the excess depreciation net of tax.

Question 3 (21 marks)Requirement 1 (16 marks)

RORRE ENTERPRISEIncome Statement

for the year ended December 31, 20X5

Continuing operations (excluding Canadian operation)Sales € 620,000Cost of sales 1 (190,000 )Gross profit 430,000Other operating income 30,000Depreciation expense 2 (55,000)Other expenses 3 (250,000 )Profit from operations 35,000Income tax expense (40%) (14,000 )Profit from ordinary activities € 21,000

Discontinued operations (Canadian operation)Sales 160,000Cost of sales (55,000 )Gross profit 105,000Depreciation expense (16,000)Other expenses (119,000 )Loss from operations (30,000)Income tax expense (40%) 12,000

Loss after tax (18,000 )

Profit € 3,000

Earnings per share before discontinued operations € 1.05

Earnings per share after discontinued operations € 0.15

1 €220,000 – €30,000 = €190,0002 €100,000 – €45,000 = €55,0003 €300,000 – €30,000 + €40,000 – 60,000 = €250,000

Requirement 2 (5 marks)

RORRE ENTERPRISEStatement of Changes in Shareholders’ Equity (Accumulated Profits)

for the year ended December 31, 20X5

Balance at 31 December 20X4 € 780,000Error:

Record unrecorded depreciation for 3 years, netof tax of €18,000 1 (27,000)

Error in December 31, 20X4 ending inventory, netof tax of €12,000 2 (18,000 )

Balance at 31 December 20X4, as restated 735,000Profit 3,000Dividends (60,000 )Balance at 31 December 20X5 € 678,000

1 €45,000 – €18,000(€45,000 × 0.4) = €27,0002 €30,000 – €12,000(€30,000 × 0.4) = €18,000

Question 4 (22 marks)Requirement 1 (8 marks)

i. Errors result from many sources including miscalculations, oversight, omissions, fraud, and misinterpretation or misapplication of accounting principles and methods. Errors must be given retroactive correction with restatement of prior period financial statements.

ii. Changes in accounting policy result from changes in the accounting treatment accorded transactions or events from one period to the next. Changes in accounting policy are given retroactive treatment with the restatement of prior period financial statements — as long as the change in policy will provide more relevant information.

iii. Changes in accounting estimates are part of the normal activity of a business and as such are given prospective treatment.

iv. Income or expenses that are unusual and material may occur infrequently, but essentially, they are related to normal business activity. These gains and losses are

included as part of income from operating activities but are may be given separate disclosure if they are material.

v. A discontinued operation is a separate component of an enterprise for which there is a formal plan of disposal. Separate disclosure is provided of operating income of the discontinued operation and any gain or loss realized as a result of the disposal of the operation.

Requirement 2 (14 marks)

1. The loss would be treated as an operating expense as part of profit from operating activities. The size of the loss may justify separate disclosure of the event in the income statement or the notes to the financial statements.

2. The loss would be treated as an operating expense as part of profit from operating activities. The size of the loss may justify separate disclosure in income statement or the notes to the financial statements.

3. The change in useful life and residual value of the machine are changes in estimates resulting from new information. The changes should be accounted for prospectively.

4. The operating loss for the year is disclosed separately, providing disclosure of revenues and expenses for the operation for the period. Separate disclosure is also provided of the loss on disposal of the operation.

5. The payment would be treated as an operating expense as part of profit from operating activities. The size of the expense may justify separate disclosure in income statement or the notes to the financial statements.

6. Failure to record depreciation represents an error which would result in retroactive correction to prior period financial statements.

7. The gain would likely be shown separately from ordinary activities in the income statement due to materiality.

Question 5 (13 marks)Requirement 1 (6 marks)

GOQUICK DELIVERY SERVICESStatement of Changes in Equity (Accumulated Profits)

for the year ending December 31, 20X5

Balance at 31 December 20X4 € 244,000Correction of error: 20X5 revenue recorded in 20X4,

net of tax of € 36,000 (84,000 )Balance at 31 December 20X4, as restated 160,000Profit 73,150 1

Dividends (40,000 )Balance at 31 December 20X5 € 193,150

1 From trial balance: €1,317,700 – €137,100 – €31,350 – €42,000 – €248,400 – €628,000 – €120,000 – €37,700 = € 73,150

Requirement 2 (7 marks)

GOQUICK DELIVERY SERVICESBalance Sheet

as at December 31, 20X5

ASSETSNon-current assetsProperty, plant & equipment € 1,179,900Accumulated depreciation — Property, plant & equipment (409,100 ) € 770,800 Current assetsAccounts receivable 294,900Prepaid rent 13,500Supplies 9,700Cash & cash equivalents 83,400

401,500 Total assets € 1,172,300

EQUITY AND LIABILITIESCapital and reservesIssued capital € 300,000Accumulated profits (losses) 193,150

493,150 Non current liabilitiesNote payable (€400,000 – €100,000) 300,000

Current liabilitiesUnearned revenue 45,200Income tax payable 67,350Current portion of long-term note payable 100,000Interest payable 21,300Salaries payable 9,300Accounts payable 136,000

379,150 Total equity and liabilities € 1,172,300

100