Balance Sheet :

TABLE $1$

$20222021$

Assets

Current assets

Cash $ $476\mathrm{.}250$ $ $603,250$

Accounts receivable $ $1,349,375$ $ $952,500$

Allowance for bad debts $($ $ $158\mathrm{.}750)($ $ $476\mathrm{.}250)$

Inventory $ $4,127,500$ $ $4,445,000$

Total current assets $ $5,794,375$ $ $5,524,500$

Long $-$ term assets

Expansion fund $ $72,000$ SO

Land $ $3\mathrm{.}492\mathrm{.}500$ $ $2,222,500$

Building $ $2,540,000$ $ $2,540,000$

Equipment $ $8,890,000$ $ $4,127,500$

Accumulated depreciation $($ $ $3,810,000)($ $ $3,175\mathrm{.}000)$

Total property $,$ plant $,$ and equipment $ $11,184,500$ $ $5,715,000$

Total assets $ $16,978,875$ $ $11,239,500$

Liabilities and Stockholders $\text{'}$ Equity

Current liabilities

Accounts payable $ $1\mathrm{.}930,334$ $ $1,905,000$

Salaries payable $ $555,625$ $ $317,500$

Unearned revenue $ $793\mathrm{.}750$ $ $476\mathrm{.}250$

Total current liabilities $ $3,279,709$ $ $2,698,750$

Long $-$ term debt

Loan payable $ $2,540,000$ $ $952,500$

Notes payable $ $4,445,000$ $ $2,540,000$

Total long $-$ term debt $ $6,985,000$ $ $3,492,500$

Total liabilities $ $10,264,709$ $ $6,191,250$

Stockholders $\text{'}$ equity

Common stock $ $2,100,000$ $ $2,100,000$

$($ S par $,5,300,000$ authorized $,2,100,000$ outstanding $)$

Additional paid $-$ in capital $ $952,500$ $ $952,500$

Retained earnings $ $3,661,666$ $ $1,995,750$

Total stockholders $\text{'}$ equity $ $6,714,166$ $ $5,048\mathrm{.}250$

Total liabilities and stockholders $\text{'}$ equity $ $16\mathrm{.}978,875$ $ $11,239,500$

Financial Statement:

Sales revenue $ $31,750,000$

Cost of goods sold $ $22\mathrm{.}034,500$

Gross profit $ $9,715,500$

Operating activities

Selling expenses

Advertising expense $ $595,313$

Bad debt expense $ $495,000$

Sales force salaries expense $ $1,706,563$

Shipping expense $ $259,953$

Total selling expenses $ $3,056\mathrm{.}829$

Administrative expenses

Executive salaries expense $ $2,032,000$

Insurance expense $ $47,625$

Depreciation expense $ $635,000$

Miscellaneous admin $,$ expenses $ $31,750$

Rent expense $ $762,000$

Utilities expense $ $127,000$

Total administrative expenses $ $3\mathrm{.}635,375$ $ $6,692,204$

Income from operations $ $3,023\mathrm{.}296$

Other gains and losses

Interest expense $($ $ $202,406)($ $ $202,406)$

Income from continuing

operations before taxes $ $2,820\mathrm{.}890$

Income tax expense $ $789,849$

Net income $ $2,031,041$

Statement of cash flow$$

Cash flow from operations

Net income $ $2,031,041$

Adjustments :

Depreciation $ $635,000$

Change in working capital accounts

Change in accounts receivable $($ $ $714,375)$

Change in inventory $ $317,500$

Change in accounts payable $ $25,334$

Change in salaries payable $ $238,125$

Change in unearned revenue $ $317,500$ $ $819,084$

Net cash flow from operations $ $2,850,125$

Cash flow from investments

Purchase of securities $($ $ $72,000)$

Purchase of land $($ $ $1,270,000)$

Purchase of equipment $($ $ $4,762,500)$

Net cash flow from investments $($ $ $6,104,500)$

Cash flow from financing

Repayment of loans $ $1,587,500$

Issuance of notes payable $ $1,905,000$

Payments of dividends $($ $ $365,125)$

Net cash flow from financing $ $3,127,375$

Net increase $($ decrease $)$ in cash $($ $ $127,000)$

Cash $,$ January $1,2022$

Cash $,$ December $31,2022$ $$603,250$

$ $476,250$

Invesment:

TABLE $1$

Number of shares

$$xito Real $,$ Inc.$\text{'}$s total shares outstanding $150,000$

Number of shares owned by Unbekannt $18,000$

Stock price

Purchase price $ $4\mathrm{.}00$

Market price on $12/31/2022$ $ $7\mathrm{.}25$

Financial results

$$xito Real $,$ Inc.$\text{'}$s reported net profit $($ loss $)($ $ $20,000)$

Dividends paid by $$xito Real during $2022$ $ $35,000$

Other Important Numbers

Tax rate $28\%$

Questions that need to b answered

$1.$ Make the necessary adjusting entries to account for Unbekannt, Inc.$$s investment in $$xito Real, Inc., at the end of the fiscal year, assuming that Unbekannt$$s finance team decides to use the fair value method to account for the investment.

$2.$ Update Unbekannt, Inc.$$s financial statements to incorporate the effects of the adjusting entries for the fair value method.

$3.$ Make the necessary adjusting entries to account for Unbekannt, Inc.$$s investment in $$xito Real, Inc., at the end of the fiscal year, assuming that Unbekannt$$s finance team decides to use the equity method to account for the investment.

$4.$ Update Unbekannt, Inc.$$s financial statements to incorporate the effects of the adjusting entries for the equity method.

$5.$ Find the financial accounting standards that a company should use to determine when to use the equity method of accounting. If you$$re studying in the U$.$S$.,$ please use U$.$S$.$ GAAP, available at FASB.org, for your research. If you$$re studying outside of the U$.$S$.,$ please use International Financial Reporting Standards $($IFRS$),$ available at IFRS.org, for your research. Note: You$$ll need to register for a free account to access the IFRS database if you don$$t already have one.

$6.$ Using your answers to the previous questions, determine the correct classification for Unbekannt$$s investment in $$xito Real, Inc. Defend your answer sufficiently to convince the finan