Archipelago Smith’s bank account reflecting the transactions for the financial year ended December 31, 2014, is reported below. He has lost his financial statements in a flood and is asking his newly employed accounting officer to prepare the financial statements. Debit $ Credit $ Trade debtors 2,500,000 Rent 900,000 Cash sales 2,300,000 Loan 900,000 Fee income (2013) 1,800,000 Salaries 950,000 Loan 4,500,000 Utilities 720,000 Interest income 150,000 Maintenance 120,000 Rent 750,000 Accounting fees (2013) 450,000 Bad debt recovered 430,000 Cash purchases 550,000 Trade creditors 1,000,000 Equipment 270,000 12,430,000 5,860,000.

(1) The bank balance on January 1, 2014, is a favorable $4,570,000. 

(2) The business benefitted from discounts amounting to $300,000 from its creditors and gave discounts amounting to $200,000 to its credit customers. (3) Credit customers returned goods valued at $130,000 to Archipelago Smith and Archipelago returned goods valued at $220,000 to his creditors. 

(4) The closing debtor's balance includes a bad debt of $150,000 

(5) Archipelago paid $20,000 out of his cash sales for repairs before lodging the remainder. 

(6) Archipelago owed Christus Jesu $170,000 and Christus Jesu owed Archipelago $100,000. 

(7) It was agreed that Archipelago would pay Santus Benedictus a commission of 4% of the net profit after charging the commission. 

(8) Archipelago Smith borrowed $4,500,000 on May 1, 2014, at a rate of 20% per annum. The repayment of principal is to be made in five (5) equal tranches. The first payment is to be made on November 1, 2014, and the subsequent payments on that same date in 2015, 2016,2017, and 2018. The interest is to be paid on January 2, 2015. (9) Accounting fees are estimated at $ 650,000 on December 31, 2014. 

(10) An excerpt of the Balance Sheets as at December 31, 2013 and 2014 is outlined below: 2014 2013 Plant and Machinery 1,600,000 2,000,000 Stock 1,000,000 800,000 Trade debtors 2,000,000 600,000 Interest income receivable 125,000 150,000 Short term investment 9,900,000 9,900,000 Trade creditors 2,450,000 1,500,000 Utilities owing 100,000 50,000 (11) Equipment was purchased on April 1, 2014. Archipelago uses the straight-line method of depreciation and the applicable rate of depreciation is 20%.

Required: 

(i) Prepare the Statement of Affairs on January 1, 2014.

(ii) Prepare the Trade debtors control account 

(iii) Prepare the Trade creditor's control account 

(iv) Prepare the Income Statement for the year ended December 31, 2014 

(v) Prepare the Balance Sheet as of December 31, 2014.

Answer rating: 100% (QA)

i The Statement of Affairs on January 1 2014 would be as follows Assets Cash 4570000 Trade debtors 600000 Interest income receivable 150000 Short term ... View the full answer