# Essays on Accounting - Excersices & Problem Solving Math Problem

Accounting - Exercises & Problem SolvingP2.13:p2.13Breanna Inc. Income StatementFor the Year Ended 31 Dec 2007\$\$Sales200000Cost of Goods Sold128000Gross Profit72000Expenses: Selling, general, and admin expenses -34000Interest expense -6000-40000Net Profit32000Less: Tax expense-8000Retained Earnings24000Breanna Inc. Balance SheetAs at 31 Dec 2007\$\$Fixed Assets: Equipment 120000Accumulated depreciation -5200068000Current Assets: Accounts receivable 10000Cash 65000Merchandize inventory 37000112000Current Liabilities: Accounts payable 1500097000165000Long Term Debt and Equity: Long term debt40000Retained earnings, 1/1/07 23000 23000Retained Earnings 31/12/0724000Dividends declared and paid during 07 -1200035000Common stock (9000 shares) 90000The dividends declared and paid for 2007 were deducted from the retained earnings. The net profit for 2007 was \$24000 while the Equity was at \$165000.E. 3.1:The Return on Investment from Julie is \$50/\$560 * 100 = 8.93 %The Return on Investment from Sam \$53/\$620* 100 = 8.55 %Based on the ROI the best choice would be investing with Julie as the ROI is 8.93%.

However more information about would be needed about The growth of the businessThe shareholder funds movementThe market interest rate and comparison of the investments with Sam and Julie with the market rateEPS for their company sharesThe gearing ratio for their firmsE. 3.3:The return on \$500 investment would be \$50The return on \$700 investment would be \$77Therefore the interest we will be willing to pay would be (\$77-\$50)= \$ 27The interest rate we would be willing to borrow \$200 at would be (\$27/\$200 * 100) = less than 13.5%E. 3.5:Firm A: ROA = Margin * sales/total AssetsTherefore 12%*1.5=18%1.5 = Sales/ Assets = Assets = \$600000/1.5 = \$400000Firm B: ROA = Net Income/Total Assets = Net Income/ Common Equity = ROEROA = ROI = \$78000/\$950000 * 100 = 8.2%Margin = 8.2%/1.3 = 6.3%Sales = 1.3*\$950000 = \$1235000Firm C: ROA = Net Income/ Total Assets7.37%=\$132000/Total Assets2.1=Sales / \$1791044, Sales = \$3761194Margin = Net Income/ Sales, Margin = \$132000/\$3761194 *100= 3.5%E. 3.7ROE= ROA = Net Income available to shareholders/ Total AssetsROE = (\$42300-\$12000)/ \$346800 * 100 = 8.7%E. 3.9: a. Before payment: Working Capital = Current Assets –Current LiabilitiesWorking Capital = \$12639 –\$7480 = \$5159Current Ratio = \$12639/\$7480 = 1.69After Payment: Working Capital = \$8789 –\$3630 = \$5159Current Ratio = \$8789/\$3630 = 2.42Best not to pay the loan as the CA will rise to 2.42 which will be holding up a lot of CA as optimal Current ratio should be 1.5b. After Loan: Working Capital = \$17639 –\$12480 = \$5159Current Ratio = \$17693/\$12480 = 1.41Best not to take the loan as the Current ratio will decrease to 1.41 from 1.69 which is below the optimal 1.5.P3.13:a. \$ Mill\$ Mill31-Aug-0731-Aug-06Current Assets: Cash 612Marketable securities1420Accounts receivable2616Inventories36821664Current Liabilities: Note payable -6-16Accounts payable-20-28Other Accrued liabilities -18-44-14-58Working Capital386Current Ratio for 31 Aug 07 = 82/44*100 = 1.86Current Ratio for 31 Aug 06 = 64/58*100 = 1.10b.

For 2006 liquidity for the company is low compared with 2007c. In the year of loss the cash could have been increased by selling either the marketable securities, by recovering the accounts receivable or by taking out a small short term loan. P3.15:a. ROA = Margin * sales/total AssetsSales = \$6000000*2 = \$12000000Margin = 15%/2 = 7.5%Net Income = \$12000000*7.5% = \$900000b.

ROA = Margin * sales/total AssetsAsset Turnover = 15%/2.5% = 6.0Sales = 6.0* \$1000000 = \$6000000Net Income = 2.5% * \$6000000 = \$150000E. 4.1: CashCapitalSalesS. noAmountEffectS. noAmountEffectS. noAmountEffecta8000+a8000+f6500+b5000+8000i13500+c-1750- 20000d-1400-Current Liabilitiese-9000-S. noAmountEffectEquipmentf6500+b5000+S. noAmountEffecth-1200-e6000+c1750+i3900+g100+1750k3160+h3000+l-1720-j1850+Rent11490l-4720-S. noAmountEffect11230d1400+Inventory1400S. noAmountEffectCOGSe15000+S. noAmountEffectReceivablesf-4000-f4000+S. noAmountEffecth4200+i9000+i9600+i-9000-13000k-3160-62006440Wages & SalariesMarketing ExpS. noAmountEffectS. noAmountEffectj1850+g100+1850100Income Statement\$\$Sales20000COGS13000Gross Profit7000Expenses: Rent1400Wages & Salaries1850Marketing Exp1003350Net Profit3650Balance Sheet\$\$Fixed Assets: Equipment1750Current Assets: Inventory6200Recievables6440Cash1149024130Current Liability112301290014650*Capital8000Add: Net Profit365011650* * Not balanced E. 4.3:Journal EntriesDr \$Cr \$aCash8000Capital8000bCash5000Bank Loan - Current Liabilities5000cEquipment1750Cash1750dRent1400Cash1400eInventory15000Cash9000Current Liability6000fCash6500Sales6500COGS4000Inventory4000gMarketing Expense100Current Liability100hInventory4200Cash1200Current Liability3000iCash3900Receivables9600Sales13500COGS9000Inventory9000jWages & Salaries1850Current Liabilities1850kCash3160Receivables3160lCurrent Liabilities4720CashE. 4.5:*Recorded entries through journal entriesJournal EntriesDr \$Cr \$aSupplies1800Inc in supply asset dec in cashCash1800Supplies Expense1400Inc in supply expense dec in supply assetSupplies1400bPrepaid Insurance480Inc in prepaid asset dec in cashCash480cWages & Salaries3200Inc in wage expense dec in cashCash3200dCash250Inc in cash inc in incomeInterest Income250eCommissions Expense700Inc in expense inc in liabilityAccrued Commissions700fInterest Expense130Inc in expense inc in liabilityAccrued Interest130gCash2100Inc in cash dec in assetAccounts Receivables2100hInventory600Dec in inventory asset inc in liabilityAccounts Payable600iAccrued Interest Expense160Dec in liability dec in cashCash160jWages & Salaries800Inc in expense inc in liabilityAccrued Wages800kAccounts Payable500Dec in liability dec in cashE.

4.7: Trans. No. AssetsLiabilitiesOwners EquityNet Incomea. Receivables +Sales +b. Prepaid Insurance +Cash -c. Prepaid Insurance -Insurance Expense -d. Cash -Accrued Wages -Wage Expense -e. Cash -Wage Expense -f. Accrued Wages +g. Cash +Receivables -E. 4.9:Retained Earnings\$Op. Balance 1 Feb630000Retained Earnings from operations(\$123000 - \$108000)15000Cl. Balance 28 Feb645000E. 4.11:Journal EntriesDr. \$Cr. \$1 Apr' 07Notes Receivable6000Accounts Receivable600031 Dec' 07Interest Receivable675Interest Revenue67531 Mar' 07Cash6900Notes Receivable6000Interest Revenue675Interest Revenue225E 4.13:Due to the omission of the payroll expense accrual adjustment entry the net income will be overstated for October. Due to the omission of the payroll expense accrual adjustment entry the net income will be overstated for NovemberOverall for both months the Net income will be overstated.

Aside from this the liabilities will also be understated. E 4.15: The amount for February 28 adjustments is \$2100?The Cash account most likely has been credited for the amount of the February transactionsThe Interest payable account is debited for February 28 adjustmentsThis adjustment is made to determine the amount paid in interest E 4.17: Journal EntriesDr \$Cr \$aCash1000000Common Stock1000000bCash50000012% Notes Payable500000cWages & Salaries380000Cash380000dInventory640000Accounts Payable640000eAccounts Receivable910000Sales910000COGS510000Inventory510000fRent110000Cash110000gStore Equipment150000Cash50000Accounts Payable100000hAccounts Payable100000Cash100000Accrued Accounts Payable620000Cash620000iUtilities Expense36000Cash36000jCash825000Accounts Receivable825000kInterest Expense60000Interest Payable on Note60000lRent Expense10000Rent PayableE 4.19: a.

Income Statement\$\$Sales741000COGS-329000Gross Profit412000Expenses: Gen. & Admin Expenses-83000Loss from Earth quake -61000Other Selling Expenses-42000Advertising Expenses-76000-262000Operating Income150000b. Income Statement\$Operating Income150000Income Tax Expense-83000Net Income67000Dividends-51000Retained Earnings16000E 4.21: Journal EntriesDr. \$Cr. \$a10 Jan' 07Paper Napkins Expense4800Cash4800b31 Jan' 07Paper Napkins Expense950Paper Napkins Used950c. 10 Jan' 07Prepaid Paper Napkins Expense4800Cash4800d31 Jan' 07Paper Napkins Expense950Prepaid Paper Napkins Expense950e. In entries a & b the net profit in the income statement would be understated for the month and the assets would be understated in the balance sheet. Using entries c & d the income statement will only show the expense for the month.

The rest of it will be treated as an asset in the balance sheet.