Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

just have this information QUESTION 1 (10 marks) You are the loan officer of a multinational bank. A small company, Samson Company, would like to

just have this information
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
image text in transcribed
QUESTION 1 (10 marks) You are the loan officer of a multinational bank. A small company, Samson Company, would like to apply for a loan. In support of the loan application, Samson Chan, owner, submitted a Trial Balance for the first year of operations ended on December 31, 2019. You have asked the company to submit other financial statements that include Income Statement, Statement of Financial Position and Cash Flow Statement for evaluating the performance of the company. Samson Company Trial Balance December 31, 2019 S 6,400 187,300 68,000 20,500 Supplies Machinery Equipment Cash Share capital Service revenue received Salaries paid Utilities paid Rent paid Insurance paid 160,000 391,120 121,000 8,000 130,000 9,920 551,120 551,120 In discussing the Trial Balance with Samson Chan, you asked whether adjusting entries have been prepared to get the accounts up to date for the Trial Balance. Samson Chan answered that they have not been adjusted. Required: a. Explain why the bank would need to read other financial statements such as Income Statement, Statement of Financial Position and Cash Flow Statement. (3 marks) b. Explain why the loan officer suspected that the accounts had not been adjusted prior to the preparation of the Trial Balance. (3 marks) c. Indicate FOUR possible adjusting entries that might be necessary before an accurate set of financial statements could be prepared. (4 marks) QUESTION 2 (16 marks) Part I (10 marks) Rainbow Company's December 31, 2019 bank statement showed a balance of $53,410. Rainbow's December 31, 2019 cash balance was $45,800. Shown below is the information needed to prepare a bank reconciliation for Rainbow Company. (1) Deposits in transit amounted to $5,500. (ii) Outstanding checks at the end of December totaled $12,200. (iii) The bank service fee for December was $100. (iv) A customer payment for a $1,500 receivable was collected by the bank but not yet recorded by Rainbow Company. (v) A check issued for the purchase of office supplies was wrongly recorded for $890 but appeared on the bank statement at $980. (vi) A check of $400 was returned with bank statement because of insufficient fund in the customer's account Required: Prepare a bank reconciliation for Rainbow Company at December 31, 2019. Part II (6 marks) Preparing the bank reconciliation is considered to be an important step in the internal control process for cash. It is because the cash balances in the depositor's accounting records and its bank statement usually do not agree. Explain the causes of discrepancies for this situation with a specific example for each cause. QUESTION 3 (15 marks) Part I (12 marks) Ripken Company uses a perpetual inventory system and reported the following transactions involving inventory during the month of April 2019: April 1 Beginning inventory 4 Purchases 30 Sales 70 units 30 units 90 units @ $150 @S160 @ $200 Required: (Show all calculations) 1. Calculate the cost of Goods Sold on April 30, 2019 for Ripken Company using the following cost flow assumptions: (1) Weighted Average Cost method and (1) First-In-First-Out (FIFO) method. (4 marks) b. Calculate the Gross Profit for the month ended April 30, 2019 for Ripken Company using the following cost flow assumptions: (0) Weighted Average Cost method and (ii) First-In-First-Out (FIFO) method. (2 marks) c. If costs were rising instead of falling, which cost flow assumptions in (a) would report the highest profit for the current year? Explain. (4 marks) d. Ripken Company's perpetual inventory system indicate that the Inventory account has a balance of S675,400 as at December 31, 2019. However, a physical count shows that the inventory on hand has a cost of only 663,800. Journalize the entry for the inventory shrinkage for Ripken Company for the year ended December 31, 2019. Assume that the inventory shrinkage is a normal amount. Explanation for the journal entry is NOT required. (2 marks) Part II (3 marks) Venus Company is a retailer of fine leather goods and prepares its financial statements on December 31 each year. The company's inventory balance at the beginning of the year (January 1) was $300,000. Venus Company purchased $250,000 of goods during January, and sales during January were $400,000. What is the balance that would appear in Venus Company's inventory account on February 1 assuming use of a periodic inventory system? Explain. QUESTION 4 (10 marks) Martin Corporation acquired a truck on January 1, 2016, at a cost of $84,000. The truck was originally estimated to have a salvage value of $4,000 and an estimated useful life of 8 years. Depreciation had been recorded through December 31, 2018, using the straight-line method. On January 1, 2019, the estimated salvage value was revised to $6,000, and the useful life was revised to a total of 7 years. Required: (Show all calculations) a. Calculate the annual depreciation expense for the years 2016 through 2018. (2 marks) b. Calculate the book value of the truck at December 31, 2018. (3 marks) c. Calculate the depreciation expense per year after revision. (3 marks) d. If the truck is sold at a gain, how is the statement of financial position affected? (2 marks) QUESTION 5 (11 marks) The following financial information pertains to SPACE Limited: Accounts receivable at December 31, 2018 Credit sales for 2019 Cash collection on credit sales during 2019 Allowance for Impairment at December 31, 2018 Accounts receivable written off on August 31, 2019 Previously written off accounts receivable was received on September 25, 2019 $ 900,000 6,800,000 6,540,000 45,000 60,000 10,000 An aging analysis estimates uncollectible receivables at December 31, 2019 to be $80,000. Required: (Explanation for each journal entry is NOT required) a. Prepare the journal entry for the accounts receivable written off during 2019. (2 marks) b. Prepare the journal entry for the event occurring on September 25, 2019 (2 marks) c. Prepare the year-end adjusting entry required to record the impairment loss of receivable. Assume the statement of financial position approach is used. (2 marks) d. Explain how the transaction in (e) affects the accounting equation. (2 marks) e. What is the net realizable value of accounts receivable to be shown in the statement of financial position as at December 31, 2019. Show your calculations. (3 marks) QUESTION 6 (20 marks) 2018 $15,000 127,500 22,500 22.500 187,500 472,500 S660,000 The financial statements of Indigo Limited are as follows. Indigo Limited Statement of Financial Position As at December 31, 2019 and 2018 2019 Assets Current assets Cash $22,500 Accounts receivable 100,000 Inventory 57,500 Prepaid insurance 15.000 Total current assets 195,000 Property, plant and equipment, net 600.000 Total assets S795,000 Liabilities Current liabilities Accounts payable $60,000 Salaries payable 37.500 Total current liabilities $97,500 Noncurrent liabilities 112.500 Total liabilities 210,000 Shareholders' Equity Ordinary shares, $100 par $435.000 Retained earnings 150,000 Total shareholders' equity 585,000 Total liabilities and equity S795,000 Indigo Limited Income Statement For the year ended December 31, 2019 2019 Sales (all on credit) $600,000 Less: Cost of goods sold 315.000 Gross profit 285,000 Less: Operating expenses 82.500 Operating profit 202,500 Less: Income tax expense 40.500 Profit for the year S 162,000 $75,000 60,000 $135,000 225,000 360,000 $225,000 75,000 300.000 $660,000 QUESTION 6 (continued) Required: (Show all calculations and round ALL answers to 2 decimal places.) a. Calculate the following ratios for Indigo Limited for the year 2019: (14 marks) i) Current ratio ii) Quick ratio iii) Return on assets iv) Return on equity v) Inventory turnover rate vi) Earnings per share b. Based on the ratios calculated in (a), explain to a shareholder why the current ratio and the quick ratio are different. Do you observe any liquidity problems of Indigo Limited? Explain. (6 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Microeconomics

Authors: Michael Parkin

6th Edition

0321112075, 9780321112071

More Books

Students also viewed these Accounting questions

Question

=+a. Is it relevant to the audience?

Answered: 1 week ago

Question

=+c. Would it generate press attention?

Answered: 1 week ago

Question

=+d. Would it create talk value or buzz?

Answered: 1 week ago