ACCT3 Week 3 Homework PDF

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Exercises and problems from the ACCT3 Chapter 2 (without tips from tutor)...

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Tutorial Work Homework: ACCT Financial: Exercise 1,7,8,11,12 (pg 34-36) Problem 21,23 (pg 38-39) Exercise 1 Questions The following definitions were discussed in the chapter: i. ii. iii. iv. v. vi.

A form of business in which two or more people combine their capital and talents Information following the financial statements that provides additional information and disclosures A form of business that is a separate legal entity, established by filing proper forms with ASIC A report that attests to the fair presentation of a company’s financial statements The most common form of business Information on role of the board and how it provides responsible leadership

Answers i. ii. iii. iv. v. vi.

Partnership Notes to the financial statements Corporation Auditor’s report Sole proprietorship Management’s discussion and analysis

Exercise 7 Question A company provides the following account balances for the current year:

Answer Statement of change in equity Year end Balance at year end

Contributed Capital 20600

Add CE 100000

Retained Earnings 75129

Note: Retained earnings beginning + Profits – Dividends = Retained earnings end $62496 + $22133 +$9500 = $75129

Total 195729

Exercise 8 Questions The following is a list of accounts: i. ii. iii. iv. v. vi. vii. viii. ix.

Mortgage payable, due in 15 years Short-term investments Cash Prepaid rent Patents Contributed equity Accounts payable Buildings Notes payable, due in six months

Answers i. ii. iii. iv. v. vi. vii. viii. ix.

Non-current liability Current asset Current asset Current asset Intangible asset Shareholder’s equity Current liability Non-current asset Current Liability

Exercise 11 Question The following items were taken from the 30 June balance sheet of Samantha Solarium:

Recreate the company’s classified balance sheet, assuming that $27200 of the mortgage payable balance will be paid within three months of the balance sheet date.

Answer Samantha Solarium Balance Sheet For the year ended 30 June Assets Current Assets Cash Accounts Receivable Prepaid Insurance Total Current Assets Non-Current Assets Buildings, net Equipment Land Total Non-Current Assets Total Assets

$41680 $29040 $9360 $80080 $120400 $127360 $123600 $371360 $451440

Liabilities and Shareholder’s Equity Current Liabilities Accounts Payable Interest Payable Mortgage Payable (due next year) Total Current Liabilities Non-Current Liabilities Mortgage Payable Total Liabilities

$24960 $7200 $27200 $59360 $178880 $238240

Shareholder’s Equity Ordinary Shares (Contributed Capital) $132000 $81200 Retained Earnings Total Shareholder’s Equity $213200 Total Liabilities and Shareholder’s Equity $451440

Exercise 12 Question These items were taken from the financial records of Tran Nguyen Pty Ltd:

Prepare a multi-step income statement assuming Tran Nguyen pays the 25 per cent company rate and has a 30 June financial year end (you can assume in this case accounting profit equals taxable income). Answer Tran Nguyen Pty Ltd Income Statement For the year ended 30 June Net Sales Cost of Sales Gross Profit Operating Expenses Administrative Expenses Selling Expenses Electricity

$154900 $75620 $79280 $15230 $14600 $17650 $47480

Other Revenue and Expenses Interest Revenue Interest Expense

$500 ($50) $450

Profit (income) before income taxes Income Tax Expense ($32250 x 25%)

$32250 $8062.5

Net Profit

$24187.5

Problem 21 Questions The following comparative balance sheet items are available from Lim Limited as of 30 June 2021:

a. Prepare a comparative, classified balance sheet for Lim Limited b. Perform horizontal and vertical analyses and interpret the results. Round percentages to one decimal point (e.g. 10.1%) c. Assume the same information above except that in 2021, bonds payable is $0 while retained earnings is $271295. Does this new information change any interpretations previously made?

Answers a. Lim Limited Comparative Balance Sheet 30 June 2020 and 30 June 2021 Assets

2021

2020

Current Assets Cash Accounts Receivable Inventory Office Supplies Prepaid Rent Total Current Assets

$15000 $50000 $25650 $12500 $10150 $113300

$25635 $85065 $27270 $13500 $12275 $163745

$240000 $24000 $300000 $125000 $689000

$300000 $24000 $200000 $100000 $624000

$6000

$6000

$808300

$793745

$75000 $100000 $35500 $13755 $12250 $237005

$35035  $33560 $7550 $16465 $92610

 $125000 $125000

$100000 $25000 $125000

$362005

$217610

$100000 $200000 $146295

$80000 $190000 $306135

$446295 $808300

$576135 $793745

Non-Current Assets Buildings Motor Vehicles Land Non-Current Investments Total Non-Current Assets Intangible Assets Patents Total Assets Liabilities and Shareholder’s Equity Current Liabilities Accounts Payable Notes Payable, Due 31/12/2021 Salaries and Wages Payable Interest Payable Incomes Taxes Payable Total Current Liabilities Non-Current Liabilities Notes Payable, Due 31/12/2021 Bonds Payable, Due 30/06/2028 Total Non-Current Liabilities Total Liabilities Shareholder’s Equity Ordinary Shares Additional Paid-In Capital Retained Earnings Total Shareholder’s Equity Total Liabilities and Shareholder’s Equity

b. Horizontal Analysis Cash Accounts Receivable Inventory Office Supplies Prepaid Rent Total Current Assets

41.5% decrease 41.2% decrease 5.9% decrease 7.4% decrease 17.3% decrease 30.8% decrease

Non-Current Investments Land Buildings Motor Vehicles Total Non-Current Assets

25% increase 50% increase 20% increase No change 10.4% increase

Patents Total Assets

No change 1.8% increase

Accounts Payable Notes Payable Salaries and Wages Payable Interest Payable Income Taxes Payable Total Current Liabilities

115% increase No change 5.8% increase 82.2% increase 25.6% decrease 156% increase

Bonds Payable

400% increase

Total Liabilities

66.4% increase

Ordinary Shares Paid-In Capital Retained Earnings Total Shareholder’s Equity

20% increase 5% increase 52.2% decrease 22.5% decrease

Total Liabilities and Equity

1.8% increase

Vertical Analysis Total Assets = $808300 Cash/TA Accounts Receivable/TA Inventory/TA Officer Supplies/TA Prepaid Rent/TA Total Current Assets/TA

$15000/TA = 1.9% $50000/TA = 6.2% $25650/TA = 3.2% $12500/TA = 1.5% $10150/TA = 1.3% $113300/TA = 14%

Non-Current Investments/TA

$125000/TA = 15.5%

Land/TA Buildings/TA Motor Vehicles/TA Total Non-Current Assets/TA

$300000/TA = 37.1% $240000/TA = 29.7% $24000/TA = 3% $689000/TA = 85.3%

Patents/TA Accounts Payable/TA Notes Payable/TA Salaries and Wages Payable/TA Interest Payable/TA Income Tax Payable/TA Total Current Liabilities/TA

$6000/TA = 0.7% $75500/TA = 9.3% $100000/TA = 12.4% $35500/TA = 4.4% $13755/TA = 1.7% $12250/TA = 1.5% $237005/TA = 29.3%

Bonds/TA

$125000/TA = 15.5%

Total Liabilities/TA

$362005/TA = 44.8%

Contributed Capital/TA Paid-In-Capital/TA Retained Earnings/TA Total Shareholder’s Equity/TA

$100000/TA = 12.4% $200000/TA = 24.7% $146295/TA = 18.1% $446295/TA = 55.2%

Horizontal analysis shows that total assets were stable with a fluctuation of only 1.8% from 2020 to 2021, however within the assets there were large fluctuations. Current assets decreased 30.8%, noncurrent investments increase 25% and land increased 50%. This means that the company is using their cash and collected receivables to purchase additional investments and land. Total liabilities increased over 66% with a majority of it coming from an increase in bonds (400%) and more than doubling of accounts payable. Equity was lower due to a drop in retained earnings. Overall, horizontal analysis shows a shift to more non-current assets and a shift from equity to liabilities. Investors and creditors may be concerned with the company’s ability to pay its obligations in the future, especially in the short term. Vertical analysis confirms this potential concern, as it shows a much higher percentage of liabilities to assets and a much lower percentage of equity to assets in 2021 than 2020....