Solving in Accounting - Math Problem Example

Accounting - Exercises & Problem Solving P2.13: p2.13 Breanna Inc. Income Statement For the Year Ended 31 Dec 2007 $ $ Sales 200000 Cost of Goods Sold 128000 Gross Profit 72000 Expenses: Selling, general, and admin expenses -34000 Interest expense -6000 -40000 Net Profit 32000 Less: Tax expense -8000 Retained Earnings 24000 Breanna Inc. Balance Sheet As at 31 Dec 2007 $ $ Fixed Assets: Equipment 120000 Accumulated depreciation -52000 68000 Current Assets: Accounts receivable 10000 Cash 65000 Merchandize inventory 37000 112000 Current Liabilities: Accounts payable 15000 97000 165000 Long Term Debt and Equity: Long term debt 40000 Retained earnings, 1/1/07 23000 23000 Retained Earnings 31/12/07 24000 Dividends declared and paid during 07 -12000 35000 Common stock (9000 shares) 90000 165000 The 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 business The shareholder funds movement The market interest rate and comparison of the investments with Sam and Julie with the market rate EPS for their company shares The gearing ratio for their firms E.3.3: The return on $500 investment would be $50 The return on $700 investment would be $77 Therefore the interest we will be willing to pay would be ($77-$50)= $ 27 The 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 Assets Therefore 12%*1.5=18% 1.5 = Sales/ Assets = Assets = $600000/1.5 = $400000 Firm B: ROA = Net Income/Total Assets = Net Income/ Common Equity = ROE ROA = ROI = $78000/$950000 * 100 = 8.2% Margin = 8.2%/1.3 = 6.3% Sales = 1.3*$950000 = $1235000 Firm C: ROA = Net Income/ Total Assets 7.37%=$132000/Total Assets 2.1=Sales / $1791044, Sales = $3761194 Margin = Net Income/ Sales , Margin = $132000/$3761194 *100= 3.5% E.3.7 ROE= ROA = Net Income available to shareholders/ Total Assets ROE = ($42300-$12000)/ $346800 * 100 = 8.7% E.3.9: a. Before payment: Working Capital = Current Assets –Current Liabilities Working Capital = $12639 –$7480 = $5159 Current Ratio = $12639/$7480 = 1.69 After Payment: Working Capital = $8789 –$3630 = $5159 Current Ratio = $8789/$3630 = 2.42 Best 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 1.5 b. After Loan: Working Capital = $17639 –$12480 = $5159 Current Ratio = $17693/$12480 = 1.41 Best 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 $ Mill 31-Aug-07 31-Aug-06 Current Assets: Cash 6 12 Marketable securities 14 20 Accounts receivable 26 16 Inventories 36 82 16 64 Current Liabilities: Note payable -6 -16 Accounts payable -20 -28 Other Accrued liabilities -18 -44 -14 -58 Working Capital 38 6 Current Ratio for 31 Aug 07 = 82/44*100 = 1.86 Current Ratio for 31 Aug 06 = 64/58*100 = 1.10 b. For 2006 liquidity for the company is low compared with 2007 c. 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 Assets Sales = $6000000*2 = $12000000 Margin = 15%/2 = 7.5% Net Income = $12000000*7.5% = $900000 b. ROA = Margin * sales/total Assets Asset Turnover = 15%/2.5% = 6.0 Sales = 6.0* $1000000 = $6000000 Net Income = 2.5% * $6000000 = $150000 E.4.1: Cash Capital Sales S.no Amount Effect S.no Amount Effect S.no Amount Effect a 8000 + a 8000 + f 6500 + b 5000 + 8000 i 13500 + c -1750 -   20000 d -1400 - Current Liabilities e -9000 - S.no Amount Effect Equipment f 6500 + b 5000 + S.no Amount Effect h -1200 - e 6000 + c 1750 + i 3900 + g 100 + 1750 k 3160 + h 3000 + l -1720 - j 1850 + Rent 11490 l -4720 - S.no Amount Effect 11230 d 1400 + Inventory 1400 S.no Amount Effect COGS e 15000 + S.no Amount Effect Receivables f -4000 - f 4000 + S.no Amount Effect h 4200 + i 9000 + i 9600 + i -9000 - 13000 k -3160 - 6200 6440 Wages & Salaries Marketing Exp S.no Amount Effect S.no Amount Effect j 1850 + g 100 + 1850 100 Income Statement $ $ Sales 20000 COGS 13000 Gross Profit 7000 Expenses: Rent 1400 Wages & Salaries 1850 Marketing Exp 100 3350 Net Profit 3650 Balance Sheet $ $ Fixed Assets: Equipment 1750 Current Assets: Inventory 6200 Recievables 6440 Cash 11490 24130 Current Liability 11230 12900 14650* Capital 8000 Add: Net Profit 3650 11650* * Not balanced E.4.3: Journal Entries Dr $ Cr $ a Cash 8000 Capital 8000 b Cash 5000 Bank Loan - Current Liabilities 5000 c Equipment 1750 Cash 1750 d Rent 1400 Cash 1400 e Inventory 15000 Cash 9000 Current Liability 6000 f Cash 6500 Sales 6500 COGS 4000 Inventory 4000 g Marketing Expense 100 Current Liability 100 h Inventory 4200 Cash 1200 Current Liability 3000 i Cash 3900 Receivables 9600 Sales 13500 COGS 9000 Inventory 9000 j Wages & Salaries 1850 Current Liabilities 1850 k Cash 3160 Receivables 3160 l Current Liabilities 4720 Cash 1720 E.4.5: *Recorded entries through journal entries Journal Entries Dr $ Cr $ a Supplies 1800 Inc in supply asset dec in cash Cash 1800 Supplies Expense 1400 Inc in supply expense dec in supply asset Supplies 1400 b Prepaid Insurance 480 Inc in prepaid asset dec in cash Cash 480 c Wages & Salaries 3200 Inc in wage expense dec in cash Cash 3200 d Cash 250 Inc in cash inc in income Interest Income 250 e Commissions Expense 700 Inc in expense inc in liability Accrued Commissions 700 f Interest Expense 130 Inc in expense inc in liability Accrued Interest 130 g Cash 2100 Inc in cash dec in asset Accounts Receivables 2100 h Inventory 600 Dec in inventory asset inc in liability Accounts Payable 600 i Accrued Interest Expense 160 Dec in liability dec in cash Cash 160 j Wages & Salaries 800 Inc in expense inc in liability Accrued Wages 800 k Accounts Payable 500 Dec in liability dec in cash E. 4.7: Trans. No. Assets Liabilities Owners Equity Net Income a. 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 Feb 630000 Retained Earnings from operations ($123000 - $108000) 15000 Cl. Balance 28 Feb 645000 E.4.11: Journal Entries Dr. $ Cr.$ 1 Apr' 07 Notes Receivable 6000 Accounts Receivable 6000 31 Dec' 07 Interest Receivable 675 Interest Revenue 675 31 Mar' 07 Cash 6900 Notes Receivable 6000 Interest Revenue 675 Interest Revenue 225 E 4.13: a. Due to the omission of the payroll expense accrual adjustment entry the net income will be overstated for October. b. Due to the omission of the payroll expense accrual adjustment entry the net income will be overstated for November c. Overall for both months the Net income will be overstated. Aside from this the liabilities will also be understated. E 4.15: a. The amount for February 28 adjustments is $2100? b. The Cash account most likely has been credited for the amount of the February transactions c. The Interest payable account is debited for February 28 adjustments d. This adjustment is made to determine the amount paid in interest E 4.17: Journal Entries Dr $ Cr $ a Cash 1000000 Common Stock 1000000 b Cash 500000 12% Notes Payable 500000 c Wages & Salaries 380000 Cash 380000 d Inventory 640000 Accounts Payable 640000 e Accounts Receivable 910000 Sales 910000 COGS 510000 Inventory 510000 f Rent 110000 Cash 110000 g Store Equipment 150000 Cash 50000 Accounts Payable 100000 h Accounts Payable 100000 Cash 100000 Accrued Accounts Payable 620000 Cash 620000 i Utilities Expense 36000 Cash 36000 j Cash 825000 Accounts Receivable 825000 k Interest Expense 60000 Interest Payable on Note 60000 l Rent Expense 10000 Rent Payable 10000 E 4.19: a. Income Statement $ $ Sales 741000 COGS -329000 Gross Profit 412000 Expenses: Gen. & Admin Expenses -83000 Loss from Earth quake -61000 Other Selling Expenses -42000 Advertising Expenses -76000 -262000 Operating Income 150000 b. Income Statement $ Operating Income 150000 Income Tax Expense -83000 Net Income 67000 Dividends -51000 Retained Earnings 16000 E 4.21: Journal Entries Dr. $ Cr.$ a 10 Jan' 07 Paper Napkins Expense 4800 Cash 4800 b 31 Jan' 07 Paper Napkins Expense 950 Paper Napkins Used 950 c. 10 Jan' 07 Prepaid Paper Napkins Expense 4800 Cash 4800 d 31 Jan' 07 Paper Napkins Expense 950 Prepaid Paper Napkins Expense 950 e. 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. E 5.3: a. Adjusting Journal entries Debit Credit Accounts Receivable $75 Cash Book $75 Accounts payable $9 Cash Book $9 b. The amount of cash to be included in the October 31 balance sheet for the bank account reconciled is $ 760. E 5.5: Bad Debt Allowance Balance on Jan 1, 2007 $13400 Bad Debt Expenses During 11 Months $21462 $34862 Bad Debt Allowance Balance on Nov 30, 2007 $9763 a. Account Written off during 11 Months $25099 Required Bad Debt Allowance on Dec 31, 2007 $9500 Debit Credit b. Account Receivable $263 Bad Debt Allowance $263 c. Note to Sales Representative If we write of $1230 which were not written of during the year the net income of Tabor Co will reduce by $1230. E 5.7 Total Credit Sales of Nadak Co. $ 340 Millions 90% paid within 10 days $ 306 Millions a. 2% Cash Discount # 6.12 Millions b. Annual Rate of Return on Cash Discount 1,8% E 5.9: Interest earned during the fiscal year $232.88 Interest earned to Maturity $517.50 a. Interest Receivable 232.88 Interest Revenue 232.88 b. Cash 5017.5 Note Receivable 4500 Interest Receivable 284.62 Interest Revenue 232.88 ---------- 5017.50 Interest Revenue from June 15 to Oct 31 (4500*13.8%*4.5/12) E 5.11: a. Using the LIFO method for inventory valuation is considered much superior to FIFO as with LIFO the inventory is valued at the most recent prices at which it is bought. This makes the inventory valuation much realistic to the market rates. b. In the time of inflation when LIFO is used to value inventory, then the recent stock sold would be at exorbitantly high cost while the previously bought stock would be valued and sold at very low cost. E 5.13: Journal Entries Dr. $ Cr.$ a. 1 Mar' 07 Prepaid Insurance 3000 Cash 3000 b. 31 Mar' 07 Insurance Expense 250 Prepaid Insurance 250 c. Prepaid Insurance at 31 Aug 07 would be ($3000 – ($250*6)) = $1500 d. Prepaid Insurance at 31 Aug 07 would be ($6000 – ($250*6)) = $4500 e. Prepaid expenses are recorded as assets as they have not incurred yet and are acting as reserves of monetary value. E.5.15: Trans. No. Assets Liabilities Owners Equity Net Income a. Interest Receivable - 15 Interest Income + 15 c. Allowance for Bad Debts +2200 Bad Debts Expense -2200 d. Cash at Bank -30 Bank Service Charges -30 e. Interest Receivable -25 Cash +25 f. Inventory +175 Accounts Payable +175 g. Inventory +380 Accounts Payable +380 h. Inventory -289 Sales+289+(Profit margin) Accounts Receivable +289+(Profit margin) P 5.19: Reconciled Bank Balance $4800 Less Deposit in Transit $2100 Add Check not presented $3000 Actual Bank Balance $5700 Reconciled Cash Account Balance $4800 Add Bank Charges $ 50 Add NSF Check $ 400 Less Cancel Check Difference $ 90 Actual Cash Account Balance $5160 Read More