Assignment Two Solutions PDF

Preview

Summary

Download Assignment Two Solutions PDF

Description

Assignment Two Problem One (4 points): In June, Bill Phinnes decides to open a cleaning and laundry service near the local university campus. (a) Analyze the following events for the month of June, and complete the table below. The first event is shown. Afterwards, calculate the total balances of the column headings to show that the accounting equation balances. (b) Prepare residual analyses for events (9) and (10). Events (1) Issued shares in exchange for $20,000 cash. (2) Purchased laundry equipment for $5,000 paying $3,000 in cash and the rest on account. (3) (4) (5) (6) (7) (8) (9) (10)

Purchased laundry supplies for $1,200 cash. Received a bill from College News for $300 for advertising in the campus newspaper for June. Received $1,500 cash from customers for cleaning and laundry services. Paid salaries of $200 to student workers. Sent the Lion Soccer Team a $200 invoice for cleaning and laundry services provided. Paid $300 to College News for advertising that was previously billed in Transaction 4. Declared dividends of $700, payable in July. Received a $150 utility expense bill for June, payable in July.

__________Assets_________________________ Event

Accounts Cash + Receivable

____Liabilities_______

Accounts Dividends + Supplies + Equipment = Payable + Payable +

____________ Share Capital

Equity________________

Retained Earnings____ + Income – Expenses -- Dividends

Solution: (a) Transaction

Accounts Accounts Dividends Share Retained Earnings_______ Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital + Income – Expenses - Dividends

(1)

+$20,000

+$20,000

———————————————————————————————————————————---------------------------------------(2)

– 3,000

+$5,000

+$2,000

——————————————————————————————————————————----------------------------------------—------------(3)

– 1,200

+$1,200

———————————————————————————————————————————----------------------------------------------------(4)

+ 300

– $300

———————————————————————————————————————————----------------------------------------------------(5)

+ 1,500

+ 1,500

——————————————————————————————————————————-----------------------------------------—-----------(6)

– 200

- 200

——————————————————————————————————————————-----------------------------------------—-----------(7)

+$200

+ 200

——————————————————————————————————————————-----------------------------------------—-----------(8)

– 300

– 300

———————————————————————————————————————————----------------------------------------------------(9)

+ 700

- 700

———————————————————————————————————————————----------------------------------------------------(10)

+ 150

– 150

———————————————————————————————————————————----------------------------------------Totals

$16,800 + $200 + $1,200 + $5,000 $23,200

= $2,150 + =

$700

$2,850

+ $20,000 + $1,700 - $650 +

$20,350

$700

(b) Event # 9: Assets are unaffected because the dividend has not been paid, and no resources increase from declaring dividends to the owners. (Note that the owners’ personal resources increase.) The past event of the dividend declaration creates a present obligation to transfer an economic resource (cash). The probability of resource outflow is high (relevant to disclose) and the obligation can be faithfully represented without error (per the Board of Directors’ minutes). So the liability Dividends Payable increases, increasing total liabilities, decreasing net assets, and decreasing equity. Dividends are owner distributions, so the decrease in equity is not from an expense. Event #10: The past event of incurring June utilities was an economic resource when incurred, but provides no right to utilities beyond June, and because the vendor has not yet been paid, total assets are unchanged. But the same past event creates a present obligation to transfer an economic resource (cash). The probability of resource outflow is high (relevant to disclose) and the obligation can be faithfully represented without error (per the invoice). So the liability Accounts Payable increases, increasing total liabilities, decreasing net assets, and decreasing equity. This event is not an owner distribution, so the decrease to equity is shown by increasing an expense.

Problem Two (3 points): The balances shown below are the ending balances for Scott Ltd as at 30 September 2019. Scott Ltd wants you to prepare a statement of comprehensive income and a statement of changes in equity “SOCE” for the month of September, as well as a balance sheet as at 30 September 2019. (See page 12-29 for the format for an SOCE, but adapt what you see to the current problem.) Note that the beginning balance of Share Capital was $20,000, and $10,000 additional shares were issued during September.

Retained earnings, September 1 Share capital Accounts payable

$12,000 30,000 7,000

Equipment

37,000

Service revenue

24,000

Dividends

6,000

Supplies expense

3,500

Cash

8,000

Utilities expense

700

Supplies

2,800

Salaries and wages expense

9,000

Accounts receivable Rent expense Loan payable (due 31 December 2020)

14,000 2,000 10,000

Solution:

Scott Ltd Statement of Comprehensive Income For the Month Ended 30 September 2019 —————————————————————————————————————————— Service revenue................................................................................... $24,000 Operating Expenses Salaries and wages expense........................................................ $9,000 Supplies expense.......................................................................... 3,500 Rent expense................................................................................. 2,000 Utilities expense............................................................................ 700 15,200 Profit .................................................................................................. 8,800 Other Comprehensive Income........................................................... __ ___0 Total Comprehensive Income............................................................. $8,800

Scott Ltd Statement of Changes in Equity For the Month Ended 30 September 2019 Share Capital Retained Earnings Balance September 1 Share issuance Profit Dividends Balance September 30

$20,000 10,000

$12,000 8,800 (6,000) $14,800

$30,000

Total $22,000 20,000 8,800 (6,000) $44,800

Scott Ltd Balance Sheet 30 September 2017 —————————————————————————————————————————— ASSETS Current Assets: Cash $8,000 Accounts receivable 14,000 Supplies 2,800 $24,800 Non-current Assets: Equipment 37,000 Total assets $61,800 LIABILITIES Current Liabilities: Accounts Payable Non-Current Liabilities Loan Payable

7,000 10,000

17,000

EQUITY Share Capital Retained Earnings Total Liabilities & Equity

30,000 14,800

44,800 $61,800

Problem Three (3 points): Presented below is an incorrectly prepared balance sheet for Malkin Yard Service Ltd at 31 December 2019. MALKIN YARD SERVICE LTD Balance Sheet For the Year Ending 31 December 2019 Assets Equipment Supplies Accounts receivable Cash Total assets

$11,000 9,000 6,000 13,000 $39,000

Equity and Liabilities Equity Share capital Retained earnings Liabilities Accounts payable Loan payable Total equity & liabilities

$9,000 7,000 8,000 15,000 $39,000

The following additional data are available for the financial year, which began on 1 January 2019:  All expenses (not including supplies expense) total $6,000.  Supplies on 1 January were $11,000, and the business purchased an additional $5,000 during the year. The balance of $9,000 shown above represents an estimate of the supplies remaining on 31 December 2019.  Profit for the year was $8,000 and dividends declared and paid were $5,000.  The Loan Payable is due on January 31, 2020.  All balances shown above are correct. Instructions a) Prepare a corrected balance sheet as at 31 Dec 2019, in the form and format required in this course. b) Determine the following: 1) Supplies used for the 12 months ending 31 Dec 2019. 2) Total revenues for the year. 3) Balance of retained earnings on January 1, 2019....