Question

a.

On January 1, 2018, Francis Corporation started business and the owners contributed

$200,000 capital in cash.

b.

The   company   paid  $24,000  to   cover   the   rent   for  the  office  space  for  the  24-month

period from January 1, 2018 to December 31, 2019.

c.

On March 1, 2018, MSK Inc. entered into  a consulting contract  under which Francis

Corporation promised to provide consulting to MSK Inc. for the 10-month period from

March   1,   2018   to   December   31,   2018.   In   return,   MSK   promised   to   pay   a   monthly

consulting fee of $15,000, which was to be paid (the entire amount of $150,000) in

January 2019. Francis fulfilled its contractual obligation during 2018.

d.

On July 1, 2018, Francis purchased office equipment for $100,000 cash. The equipment

has   an   estimated   useful   life   of   5   years   and   no   salvage   value.   The   equipment   was

immediately   placed   into   use.   Francis   uses   straight-line   depreciation.   Francis   records

depreciation expense in proportion to the number of months’ usage.

e.

Through November 30, 2018, the company had paid $66,000 to its employees for 11

months of salaries. Accrued salaries on December 31, 2018, were $6,000.

f.

On December 31, 2018, Nor Corporation advanced $20,000 to Francis Corporation for

consulting services to be provided during 2019.

(Treat the $20,000 as unearned revenue)

Required:

i.

Prepare   an   income   statement   for   the   year   ended   December   31,   2018.

(5 marks)

ii.

Prepare a balance sheet as of December 31, 2018.

(10 marks)

iii.

Prepare the CFO section of the cash flow statement, using the DIRECT method.

(5

marks)

iv.

Repeat (iii) under the INDIRECT method.

(5 marks

Answer 1

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