This is all the information given for the assignment. I am needing a new and adj balance sheet, income statement, and cash flow sheet for the company. The check figures are the correct figures that the new sheets should add up to. I am having issues getting the operating activities to add up to the net cash from operations of $331,785. Please help

HYDROQUAL, INC. BALANCE SHEET DECEMBER 31, 20X2 ASSETS 20X2 CURRENT ASSETS Cash S 314,910 Accounts receivable 153,500 Supplies on hand 6,860 Prepaid insurance 2,654 Total Current Assets 477,924 LONG-TERM ASSETS Equipment 44,500 Accumulated depreciation equipment (12,714) Vehicles 266,650 Accumulated depreciation-vehicles (40,000) Leased Shop Equipment 10,750 NOL tax benefit 3,594 NOL valuation allowance (1,258) License 39,000 Total Long-Term Assets 310,522 TOTAL ASSETS S 788,447 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES CURRENT LIABILITIES Accounts payable S 14,303 Wages payable 10,860 Taxes payable 77.927 Total Current Liabilities 103,089 LONG TERM LIABILITIES Long-term lease payable 6,985 Note payable 240,000 Total Long Term Liabilities 246,985 Total Liabilities 350,074 STOCKHOLDERS EQUITY Common stock 160,000 Retained earnings 278,372 Total Stockholders" Equity 138,372 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY S 788,447HYDROQUAL, INC. STATEMENT OF INCOME FOR THE YEAR ENDING DECEMBER 31, 20X2 20X2 Service revenue S 1,345,500 Cost of services sold 636,963 Gross profit 708,537 Operating expenses Selling and administrative 288,100 Depreciation and amortization 49,357 Total operating expenses 337.457 Operating income before income taxes 371.079 Income tax expense (77,927) Net income S 293,153HYDROQUAL, INC. JOURNAL ENTRIES DECEMBER 31, 20X2 JIE # DATE ACCT # ACCOUNT NAME DEBIT CREDIT 1/1/X2 563 SERVICE COSTS-INDIRECT-LEASE EXPENSE-SHOP BLDG 31,667 602 SELLING & ADMIN-LEASE EXPENSE-OFFICE BLDG 6,333 101 CASH 38,000 To record and allocate new building lease payment. 2 1/1/X2 190 RIGHT-OF-USE ASSET--LEASE-SHOP EQUIPMENT 10,750 409 LEASE PAYABLE-SHOP EQUIPMENT 6,985 101 CASH 3,765 To record new shop equipment lease and first payment. 3 2/1/X2 101 CASH 240,000 401 LONG-TERM DEBT-NOTES 240,000 To record issuance of long-term notes payable. 4 2/1/X2 181 VEHICLES 240,000 101 CASH 240,000 To record purchase of two new trucks. 5 101 CASH 255,000 105 ACCOUNTS RECEIVABLE 1,090,500 505 SERVICE REVENUE FROM CONTRACTS WITH CUSTOMERS 1,345,500 To record revenue from maintenance contracts. 181 VEHICLES 7,040 561 SERVICE COSTS-INDIRECT-SHOP WAGES 150,600 101 CASH 154,230 305 WAGES PAYABLE 3,410 To record accrual and payment of shop wages, including wages capitalized to trucks. 560 SERVICE COSTS-DIRECT-CREW WAGES 351,195 305 WAGES PAYABLE 15,969 101 CASH 359,714 305 WAGES PAYABLE 7,450 To record accrual and payment of crew wages. 553 SERVICE COSTS-DIRECT-FUEL 40.341 101 CASH 40,341 To record purchase and payment of truck fuel. 9 101 CASH 1,019.500 105 ACCOUNTS RECEIVABLE 1,019,500 To record receipts on account. 10 302 ACCTS PAY-SUPPLIERS-OTHER COSTS 54.140 101 CASH 54,140 To record payment on account.11 552 SERVICE COSTS-DIRECT-LEASE EXPENSE-TRUCKS 22,780 101 CASH 22,780 To record rent payment for maintenance trucks. 12 181 VEHICLES 1,553 563 SERVICE COSTS-INDIRECT-LEASE EXPENSE-SHOP BLDG 1,553 To capitalize part of shop rent to trucks. HYDROQUAL, INC. JOURNAL ENTRIES DECEMBER 31, 20X2 (cont.) 13 181 VEHICLES 1,120 631 SELLING & ADMINISTRATIVE-OTHER 7,110 611 SELLING & ADMIN-OFFICERS SALARIES 138,880 612 SELLING & ADMIN-OTHER SALARIES $4,600 609 SELLING & ADMIN-PROFESSIONAL FEES 6,300 615 SELLING & ADMIN-PAYROLL AND OTHER TAXES 57,675 607 SELLING & ADMIN-SUPPLIES 14.500 101 CASH 280,185 To record accrual and payment of S&A expenses, including salary capitalized to trucks. 14 181 VEHICLES 662 562 SERVICE COSTS-INDIRECT-SHOP UTILITIES 12,846 301 SELLING & ADMIN-UTILITIES 2,702 101 CASH 16.210 To record accrual and payment of utilities, including amount capitalized to trucks. 15 181 VEHICLES 16,275 564 SERVICE COSTS-INDIRECT-SUPPLIES 32,108 302 ACCTS PAY-SUPPLIERS-OTHER COSTS 48,383 To record purchase of supplies, and to capitalize parts used for truck modifications. 16 12/31/X2 129 SUPPLIES ON HAND 3,020 564 SERVICE COSTS-INDIRECT-SUPPLIES 3,020 To adjust to ending supplies inventory count 17 12/31/X2 710 AMORTIZATION OF LICENSING COSTS 3,000 197 LICENSE 3,000 To record amortization of licensing costs. 18 12/31/X2 701 TRUCK DEPRECIATION 40,000 182 VEHICLES-ACCUMULATED DEPRECIATION 40,000 To record depreciation expense on trucks.18 12/31/X2 701 TRUCK DEPRECIATION 40.000 182 VEHICLES-ACCUMULATED DEPRECIATION 40 000 To record depreciation expense on trucks. 19 12/31/X2 704 EQUIPMENT DEPRECIATION 6,357 172 EQUIPMENT-ACCUMULATED DEPRECIATION 6.357 To record depreciation expense on shop equipment. 20 12/31/X2 821 INCOME TAX EXPENSE 77,927 314 INCOME TAX PAYABLE 77.927 To record income tax expense at statutory rate of 21%. Totals 4,012,449 4,012 449Year 2 check figures All Sections Year 2 Check figures: Balance Sheet Allowance for D/A $23,500 Operating Lease- Building: $286,103 Deferred income tax asset $11,030 Total net PP&E $255,119 Interest payable $9,900 Income taxes payable $67,422 Operating lease payable office building, long term: $248,103 Total Liabilities & Equity $1,050,573 Income Statement COGS $640,728 Depr and amort $54,024 Net income, after taxes $226,920 EPS: Weighted avg shares outstanding 16,000 Cash Flows: Net cash from operations $331,785 Net cash from financing $240,000 Disclosures in Notes to F/S's: 1) Summary of Significant Accounting Policies 2) Notes payable 3) Leases and Other Commitments 4) Income Taxes 5) Fair value of financial instruments 6) Information about major customers 7) Reconciliation of Net Income to Net Cash Flows from Operating Activities (this is needed ONLY IF the cash flow statement was done with the direct method)HYDROQUAL, INC. Preliminary Financials 20X2 In early December 20X2, Rick Bailey called Tom Fasbee to tell him that, in addition to meeting several other criteria, HydroQual's loan covenants required annual financial statements be submitted to the bank. Regina Sontag at Midwest American Bank had reminded Rick that the statements must be reviewed by a CPA and that the review and related report should be comparable to what Dunes & Driftwood had done last year. In addition, the bank requested comparative financial statements, including notes that provide the fair value of all financial instruments and information on major customers. Rick wanted to know if Dunes & Driftwood would do the work again. Tom said his firm would be delighted to do it. Rick then requested that Tom send out the same person. He indicated that HydroQual's people knew you and had confidence in your ability. Tom indicated that Rick's staffing request would be "no problem." You, of course, were happy to be called on again. You made arrangements with Jerry Loos to obtain financial statements as early as possible in 20X3. You received HydroQual's 20X2 financial statements on Wednesday, January 13. A preliminary review revealed the large crew truck investment made earlier in the year. You decided that a quick stop at Martha Mason's office would be appropriate. Martha represented Dunes & Driftwood on HydroQual's tax work. You asked Martha how the crew trucks would be depreciated for tax purposes. She indicated that they would be depreciated using the 5-year half year convention Modified Accelerated Cost Recovery System (MACRS) schedule. She also reminded you that the shop equipment purchased last year is being depreciated using the 7-year half year convention MACRS schedule. She also noted that she understood that all items classified as property, plant, and equipment are depreciated to the nearest full year for book purposes. Martha had a number of questions for you on another client, so you completed your conversation over lunch. Before leaving, she reminded you that the MACRS depreciation schedules can be found on the IRS.gov website. You planned to spend the afternoon reviewing HydroQual's preliminary financial statements in detail and get questions to Jerry by Thursday. Jerry then would prepare responses so that you could begin the review on the following Monday.HYDRDQUAL. INC. ll'.'.'lues1ions for Client Z You went to Hydroual as planned on Monday, January 18. After reviewing Jerry's financials and vehicles cost schedule, you faxed him a list of your questions. Jerry called you the next morning indicating that he had the requested data ready. and you confirmed your afternoon meeting at Hydchual's new location. Having completed your research on the new issues for EDXE and eaten a light lunch, you left for HydroQual. REQUIRED: Your questions and Jerry's responses are summarized here. After some research, you determined that the market rate of interest on debt comparable to HydroElual's new note was still 4.5% as of year-end. You and Martha Mason had met for lunch after your latest discussion with Jerry since you wanted to ask her about the tax treatment for bad debt expense and deferred revenue. Jerry Loos had not recorded either, but you felt that he should have. Martha stated that the IRS does not recognize bad debt expense until accounts are actually written off, and they recognize advance payments as revenue when received. She also confirmed that the tax law allows lease payments for long-term leases to be deducted for the applicable months in the current calendar year, which is no different from the treatment of short-term leases. Using this information and Jerry's responses below, determine the adjusting and correcting journal entries needed to report HydroQuaPs financial position in accordance with US. GAAP. All adjusting and correcting journal entries must be documented by 1} calculations to support your analysis, 2) detailed explanations of the reason for the journal entry. and 3} authoritative sources where appropriate. YOUR QUESTIONS AND CLIENT RESPONSES 1. Who planned the truck modication work? How was it supervised? Was it someone on payroll or do you have an invoice for this work? The specifications were drawn by Rick Bailey. which took him only about 'l hours. The actual work was supervised by Kay Mallard. who spent about 22 hours on this task. We just calculated the amounts on an average hourly rate based on their salaries. 2. We noticed shop labor on your schedule of truck additions. Was this work done by your employees. and if so, did they lwork only on the trucks during that month and a hall'period, or was there other business-related work going on in the shop at the same time ? it" they worked on other jobs besides the retooling of the trucks. we need to know what cost driver you used to allocate the rent and utilities. We also need to make sure the $1", 04!!) in labor costs did not include work on jobs other than the truck modications. Also, how many hours did they work on the trucks? All the work on the trucks was completed by HydroQual's crew. They worked on the trucks and other jobs in the shop during that time, and the entire $T.4 was incurred on the retooling job. Total shop labor for the same period amounted to $1?,945. That ratio was the basis of my allocation of rent and utilities. The crew worked 320 hours on the trucks. 3. How much was the total rent and utilities for the month and a half that you worked on the trucks? Shop rent and utilities expense for the one and one-half months totaled $5,647. 4. We did not see any interest expense accrued for 20X2. Shouldn't we expense the interest due on the note as of year-end? I didn't record the interest because I didn't have to make a payment until this year. 5. Speaking of interest, we believe that you can capitalize some interest cost to the trucks since the retooling qualifies as a self-constructed asset. As long as the investment was substantial and an extended period of time was spent preparing the property for use, GAAP allows this. We think you meet this criteria, but we need to know when you purchased the various items used to modify the trucks to be able to complete our calculation. All materials were on hand or purchased by February 1 so they would be available as needed. 6. Do you anticipate any collection problems on accounts receivable? Your ending balance has increased by over 86 percent. Is an allowance required at year-end? We think it is all collectible. The last payment received on the $12,000 monthly contract executed on 3/1 was received at the end of October, for work done in September. Rick says we just will not renew the contract if the balance is not paid by March 1, so I am not going to worry about it until then. We are confident it will be paid. We have a $12,500 amount due from another client, but they told us the check is in the mail, so that is not a problem either. One of our newer clients that we added in May this year is a month late, but Rick knows them well so we think that $11,000 amount will arrive any day now. Everything else is on time. 7. We remember at the end of last year that you had not booked the supplies inventory on hand as an asset. Were these supplies inventoried at year-end this year? How were their values calculated? Shop supplies were inventoried on December 31 and their costs were computed from the latest invoices. I made an adjusting entry for this similar to the one you had me make last year.8. We noticed that wages payable decreased quite a bit from last year, despite having one more day in the pay period to accrue and the fact that your operations increased this year. Is there a reason for this decrease and could you make the time cards available to us? Things went well for us this year and due to a very mild December, we ended up being ahead of schedule in completing our maintenance work for the month. As a result, we were able to close down over the holiday and give our crew several days off. Unfortunately, it was unpaid time, but they were still happy to have the break. In addition, we did not have to pay any overtime at the end of December this year. I have the time cards if you need them. 9. From our calculations, it appears that you are depreciating the original cost of the trucks over a six year period, using straight-line and with no salvage value. Is that correct? Also, we did not see any depreciation taken on the additions to the trucks. We will need to adjust for that using the same method you used for the trucks. Yes, the trucks are depreciated over six years to the nearest full year. Salvage value is expected to be zero. I guess I was so busy getting that truck schedule done that I forgot to take the additional depreciation. Would the capitalized interest affect that depreciation amount? Can you take care of that for me please? 10. What are the requirements set out by the covenants on the bank loan? There are a few ratios that we need to calculate. They want our current ratio to be at least 1.5 and they want our long-term liabilities to equity ratio to be under 1.2. Dividends may not be distributed unless earnings exceed five times interest. Loans may not be made either to Ms. Mallard or to Mr. Bailey. Salary increases for Ms. Mallard and Mr. Bailey must be approved by the bank. We are in compliance with all of those things. In fact our current ratio is over 4.6. 11. It looks like the short-term portion of the truck note needs to be reclassified. What do you think? I didn't reclassify the short-term principal portion due in 20X3. I didn't think I needed it on the financial statements because I have a loan amortization schedule from the bank that helps me keep track of how the payments are allocated to principal and interest. 12. Could we get a list all maintenance contracts and their terms please? We need this information as a basis for disclosing any major customers. Here it is...we have got some new contracts that we collect in advance now, so that has really helped us bump up our revenue.12. Could we get a list all maintenance contracts and their terms please? We need this information as a basis for disclosing any major customers. Here it is...we have got some new contracts that we collect in advance now, so that has really helped us bump up our revenue. HYDROQUAL, INC. Contract List for 20X2 Original Term Beginning AIR Total Cash Months Earned # Payments Ending A/R Contract : Contract Term Months Payment Arrangement Balance Received in Current Year Received Balance 2/1/X1-1/3102 12 End of Month Payment $12,500 $137.500 12 11 $25,000 $12,500 2 2/1/X1-1/3102 12 End of Month Payment $13,000 $156.000 12 12 $13,000 $13,000 3 2/1/X1-1/31/2 12 End of Month Payment $11,500 $138,000 12 12 $11,500 $11,500 3/1/X1-2/28/2 12 End of Month Payment $10,000 $120,000 $10.000 $10,000 5 3/1/X1-2/2802 12 End of Month Payment $12,000 $120,000 12 10 $36,000 $12,000 5/1/X1-4/3052 12 End of Month Payment $11,500 $138,000 12 12 $11,500 $11,500 7 8/1/X1-7/3102 12 End of Month Payment $12,000 $144.000 12 $12.000 $12,000 3/1/X2-2/28/X3 12 Advance Payment $120.000 10 $10,000 3/1/X2-2/28/X3 12 Advance Payment $135,000 $11,250 T 5/1/X2-4/30/X3 12 End of Month Payment $66.000 6 $22.000 $11,000 11 12/1/X2-11/30/x3 12 End of Month Payment 0 $12,500 $12,500 $82,500 $1,274.500 $153,50013. We noticed that the cost of leasing trucks has decreased to $22, 780 for this year. Is this because you purchased the two new trucks? We also noticed that the lease payment on your new building is $38,000, which is much higher than you paid for your location last year. We are assuming you entered into a long-term lease when you moved, so we need some additional information from you to help us determine if this is an operating or a finance lease. How long is the lease? Will you own the building when the lease ends? Can you provide us with the fair value of the building and also the interest rate used to determine the annual payments? We also need to know the useful life of the building. We no longer lease the trucks since we purchased and retooled the new ones. That $22,780 was incurred to rent trucks at the $150/day rate until we got the new trucks retooled. I agree that the $38,000 is a little high, but that's the agreement that Rick and Kay negotiated. They settled on a 4.75% interest rate and a 10 year lease term. We only rent a little over half of the building, so will not own it at the end of the 10 years. I am pretty sure the building is worth well over a million dollars. It's a relatively new building, so is not going to wear out anytime soon-certainly not within the next 50 years. We have a great location here, and the real estate prices just keep going up in this area. That is all the information I have. You can see that I recorded the lease payment correctly in the journal entries, and even allocated it between the shop and the office spaces. Why do you need all this detail? Do you want a copy of the lease? 14. We see you have another new lease this year for additional shop equipment. You booked this lease as a long-term liability, so we need the same information for this lease as we asked for on the lease for the building. We need the lease term, the interest rate, the fair value of the assets leased, and the useful life of the assets. Yes, Kay negotiated that lease. We are paying an annual lease payment of $3,765 for three years. If we had purchased that equipment, it would have cost us well over $20,000 and we certainly would have been able to use it for seven years or more. However, we did not want to purchase items that we may not need over the long term, depending on the direction the business goes over the next few years. They did not give me an interest rate, but I do know that the total principal amount due on the lease over the three years is $10,750. We will be returning the assets to the lessor at the end of the lease. Is that what you need to know? 15. We noticed the prepaid insurance balance has not changed from last year. Did you purchase any more insurance or did any of the terms of the policies change? I forgot about adjusting that. We did not buy any more insurance and nothing has changed. That reminds me, we need to renew those policies next month. 16. Have you considered temporary differences in your income tax calculations for the year? It appears you may have a few of these. I really don't understand taxes very well. I just multiplied our income by our 21% tax rate. I have no idea what you mean by temporary differences. What would cause those