Adele Hopkins started a graphic design company called Adys Ads Ltd. in 20X1.

A number of
family members provided her with long-term loans to start the business. After closing the
books at December 31, 20X5, Adys Ads had the following account balances:

Cash
Accounts receivable
Supplies inventory
Furniture and equipment
Accumulated amortization
Short-term bank loan
Accounts payable
Salaries and wages payable
Utilities payable
Income taxes payable
Long-term loans
Share capital
Retained earnings
Revenue
Utility expense
Salary and benefits expense
Supplies expense
Amortization expense
Interest expense
Advertising expense
Income tax expense

DR
18,600
261,900
2,400
623,100

CR

233,800
91,750
36,450
49,650
3,300
23,600
200,000
7,500
259,950

From the trial balance above, Adele prepared the following statement of financial position
for December 31, 20X5:
Adys Ads Ltd.
Statement of Financial Position
As at December 31, 20X5
Current assets:
Cash
Accounts receivable
Supplies inventory
Total current assets
Non-current assets:
Furniture and equipment
Accumulated amortization
Total assets
Current liabilities:
Accounts payable
Salaries and wages payable
Utilities payable
Income taxes payable
Short-term loan payable
Total current liabilities
Non-current liabilities:
Long-term loans
Total liabilities
Shareholders equity:
Share capital
Retained earnings
Total liabilities and shareholders equity

$ 18,600
261,900
__2,400
282,900
$623,100
(233,800)

389,300
$ 672,200
$ 36,450
49,650
3,300
23,600
91,750
204,750
200,000
404,750
7,500
259,950
$ 672,200

During 20X6, Adys had the following events:

Clients were invoiced a total of $579,525.

A total of $482,100 was collected from clients.
Utility invoices for the year totalled $5,890.
A total of $6,100 was paid to utility companies.
Employees earned a total of $351,000 in salaries, wages, and benefits during the
year.
Adys paid $382,500 in salaries, wages, and benefits during 20X6; the balance will be
paid in January 20X7.
All taxes owing at the end of 20X5 were paid in 20X6.
$16,000 in supplies inventory was purchased on credit.
$9,200 in supplies was used during the year.
Amortization expense for the year was $90,500.
A $10,000 repayment was made on the short-term bank loan.
Interest expense of $3,300 was incurred and paid during the year.
$25,000 was paid in cash for advertising.
Income taxes for 20X6 were estimated to be $14,500.

Required
a. Prepare journal entries to reflect the events of 20X6. (20 marks)
b. Prepare a statement of income for 20X6. (Hint: It is probably easiest to do this in
an Excel spreadsheet. Start with the 20X5 trial balance, post your journal entries,
and derive the 20X6 trial balance. Then, use this trial balance to prepare the
statement.) (10 marks)
c. Prepare a statement of changes in equity for 20X6. (4 marks)
d. Prepare a statement of financial position with comparative numbers.Use the
statement of financial position that Adele created for the comparative numbers. (8
marks)
e. Identify the sources of cash inflows and outflows. (8 marks)
f.

Calculate working capital for 20X6. (2 marks)

g. Comment on Adys financial performance for the year. How did the business do
compared to last year? Have finances been managed wisely? Do you have any
suggestions for what the company can do better? What other information do you
need to do a deeper analysis? (8 marks)