Financial Accounting Exercise Question 1. (&points) "Spanish Winer" is a wholesaler of Spanish wines located in Madrid, whose balance sheet at December 31, 2013 is the following: "Spanish Wines" Balance Sheet at Dec 31, 2013 Assets Liabilities and Stockholders' Equity Total Cash 300,000 Liabilities Accounts Receivable 200,000 Accounts payable 50,000 Buildings 1,000,000 Long-term debt 1,300,000 Equipment 100,000 Stockholders' equity Paid-in capital 150,000 Retained earnings 100,000 1,600,000 Total 1,600,000 The following is a summary of transactions that occurred during 2014: 1) On Jan 2, the company asks for a loan of Eur 30,000 with a local bank, which it will be paid back in 1 year. The annual interest required by the bank is 4% (applied to the entire sum) and it will be paid in 1 year. 2. On Jan 10, the company acquires inventory on account for Eur 500.000 3) On Jan 31, the company uses the Eur 30,000 loan to pay for a truck (use a separate account, not Equipment). The total cost of the truck is Eur 40,000 and it is paid in cash. The truck is depreciated on a straight line basis over its useful life of 5 years. The estimated residual value is Eur 10,000. 4 On Jan 31, "Spanish Wines" discovers that inventory valued at Eur 10,000 is defective, and decides to returns it to the provider. The same payment method as when buying was used). 5) The company sells its inventory on credit terms of 2/10,n/30 (it means discount of 2% if paid before 10 days, otherwise entirely if paid in 30 days). Consider the following transactions realized by this company count them as 52, 56, 5c, etc.): Aug 9 Sales on credit to Pepe Wine, Eur 800,000. Sales on credit to "Mary Ligwors. Eur 300,000. Aug 11 Aug 15 Collected the cash from "Pepe Wine". Sep 10 Colected 90% of the cash from "Mary Lignors" Sep 12 Pepe Wine" returned some defective bottles that they acquired on Aug 9 for Eur 10,000. Our company "Spanish Wines" issued a cash refund immediately. On Sep 30, our company receives the bad news that one of the clients, "Mary Lignor", is bankrupt and cannot fulfill their obligations." Spanish Wines" treats the remaining cash that they are waiting from Mary Lignor accordingly. 7 On Oct 1, the company signs a one-year rental contract with a real estate agency. The contract is for renting a new warehouse where "Spanish Wines" will expand their operations. The total amount for 1 year paid by "Spanish Wines" at Oct 1 is 24,000. 8) On Nov 1, the company sells the truck, after 9 months of use, because they realized that they don't use it too much. They manage to sell it for Eur 49,000 that they receive in cash. 9 On Dec 31, the company checks the inventory and realized that the value of the inventory left in their warehouses is 50,000. 10) On Dec 31, the cash manager announces that Eur 100,000 from the long-term debt is due in July 2015, hence it should be treated accordingly by the accounting department. 11) On the same day, Dec 31, the board of " Spawis Wines" analyzes the proposal to declare dividends to their shareholders. According to the company rules, they are allowed to declare up to 25% of the retained carnings, if positive. The board decides to declare the maximum amount allowed. (No caso is paid thus day. It will be paid next year, in April) Required: a) Prepare the journal entries for the previous transactions. (Note that some implied adjustments may be needed at Dec 31 (6.5 points) b) Prepare an Income Statement of Spanish Wines" for the year 2014. (0.5 points) c) Prepare a Balance Sheet of Spanish Wines at Dec 31, 2014. (1 point Financial Accounting Exercise Question 1. (&points) "Spanish Winer" is a wholesaler of Spanish wines located in Madrid, whose balance sheet at December 31, 2013 is the following: "Spanish Wines" Balance Sheet at Dec 31, 2013 Assets Liabilities and Stockholders' Equity Total Cash 300,000 Liabilities Accounts Receivable 200,000 Accounts payable 50,000 Buildings 1,000,000 Long-term debt 1,300,000 Equipment 100,000 Stockholders' equity Paid-in capital 150,000 Retained earnings 100,000 1,600,000 Total 1,600,000 The following is a summary of transactions that occurred during 2014: 1) On Jan 2, the company asks for a loan of Eur 30,000 with a local bank, which it will be paid back in 1 year. The annual interest required by the bank is 4% (applied to the entire sum) and it will be paid in 1 year. 2. On Jan 10, the company acquires inventory on account for Eur 500.000 3) On Jan 31, the company uses the Eur 30,000 loan to pay for a truck (use a separate account, not Equipment). The total cost of the truck is Eur 40,000 and it is paid in cash. The truck is depreciated on a straight line basis over its useful life of 5 years. The estimated residual value is Eur 10,000. 4 On Jan 31, "Spanish Wines" discovers that inventory valued at Eur 10,000 is defective, and decides to returns it to the provider. The same payment method as when buying was used). 5) The company sells its inventory on credit terms of 2/10,n/30 (it means discount of 2% if paid before 10 days, otherwise entirely if paid in 30 days). Consider the following transactions realized by this company count them as 52, 56, 5c, etc.): Aug 9 Sales on credit to Pepe Wine, Eur 800,000. Sales on credit to "Mary Ligwors. Eur 300,000. Aug 11 Aug 15 Collected the cash from "Pepe Wine". Sep 10 Colected 90% of the cash from "Mary Lignors" Sep 12 Pepe Wine" returned some defective bottles that they acquired on Aug 9 for Eur 10,000. Our company "Spanish Wines" issued a cash refund immediately. On Sep 30, our company receives the bad news that one of the clients, "Mary Lignor", is bankrupt and cannot fulfill their obligations." Spanish Wines" treats the remaining cash that they are waiting from Mary Lignor accordingly. 7 On Oct 1, the company signs a one-year rental contract with a real estate agency. The contract is for renting a new warehouse where "Spanish Wines" will expand their operations. The total amount for 1 year paid by "Spanish Wines" at Oct 1 is 24,000. 8) On Nov 1, the company sells the truck, after 9 months of use, because they realized that they don't use it too much. They manage to sell it for Eur 49,000 that they receive in cash. 9 On Dec 31, the company checks the inventory and realized that the value of the inventory left in their warehouses is 50,000. 10) On Dec 31, the cash manager announces that Eur 100,000 from the long-term debt is due in July 2015, hence it should be treated accordingly by the accounting department. 11) On the same day, Dec 31, the board of " Spawis Wines" analyzes the proposal to declare dividends to their shareholders. According to the company rules, they are allowed to declare up to 25% of the retained carnings, if positive. The board decides to declare the maximum amount allowed. (No caso is paid thus day. It will be paid next year, in April) Required: a) Prepare the journal entries for the previous transactions. (Note that some implied adjustments may be needed at Dec 31 (6.5 points) b) Prepare an Income Statement of Spanish Wines" for the year 2014. (0.5 points) c) Prepare a Balance Sheet of Spanish Wines at Dec 31, 2014. (1 point