Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help me with the following questions about financial statement preparation. Thank you~! Innovative Design Corporation (IDC) is a merchandizing company that specializes in motor

Please help me with the following questions about financial statement preparation. Thank you~!

Innovative Design Corporation (IDC) is a merchandizing company that specializes in motor vehicles. The company was formally established on June 1st , 2017 by issuing shares to investors. Inventory of IDC is accounted for by specific identification, perpetual inventory system. Straight-line depreciation is used for all the plant assets. Useful lifes for building, furniture and fittings and motor vehicle are 30 years, 15 years and 10 years respectively. No residual value is expected. IDC records a full months depreciation in the month of acquisition, and no depreciation in the month of disposal. Financial statements of IDC are prepared for each month. The post-closing trial balance of IDC as at July 31st, 2018 is as follows:

Innovative Design Corporation

POST-CLOSING TRIAL BALANCE

AS AT JULY 31st 2018

Account

Balance ($)

Debit

Credit

Cash

4,182,580

Accounts Receivable

24,722,000

Inventory

15,368,000

Prepaid Rent

480,000

Supplies

18,000

Building

36,500,000

Accumulated Depreciation Building

1,419,444

Motor Vehicle

1,800,000

Accumulated Depreciation Motor Vehicle

150,000

Furniture and Fittings

1,530,000

Accumulated Depreciation Furniture and Fittings

34,000

Accounts Payable

18,848,500

Notes Payable (repayable Dec 31, 2018)

1,050,000

Dividends Payable

1,200,000

Office Salaries Payable

710,000

Wages Payable

689,000

Utilities Payable

132,000

Interest Payable

12,250

Share Capital - Preference, 6%, $100 par value, 200,000 authorized, issued and outstanding

20,000,000

Share Capital - Ordinary, $1 par, 20,000,000 shares authorized, 1,024,500 shares issued and outstanding

10,245,000

Share Premium - Preference

7,528,000

Share Premium - Ordinary

16,308,329

Retained Earnings

6,274,057

84,600,580

84,600,580

The following transactions took place in August 2018:

  1. Purchased 25 X-class family cars from Bercedez-Menz. Catalogue price is $260,000 per car, trade discounts are 5% for orders over 10 and 8% for orders over 20. Terms: 2/15, n/30.
  2. Paid office salaries, wages, and utilities, accrued last month, for $680,000, $650,000 and $132,000 respectively.

Received payment from SpeedyDelivery for the 10 Yotoya MPVs (Multi-purpose Vehicles) sold on June 20th. The sales invoice amount was $5,984,000 under terms 1/5, n/20. Each of these MPVs cost IDC $428,000.

  1. Sold 20 green energy Donha trucks to SpeedyDelivery at $185,000 each. SpeedyDelivery paid 50% in cash and the rest in a 3-month 4% note. Both interest and principal will be paid when the note gets due. Cost of each truck to IDC was $100,800.
  1. IDC has 6 motor vehicles in use, each costing $300,000. Four were acquired when the company was first established and the other two were acquired 6 months later. As the sole agent for Bercedez-Menz in Hong Kong, IDC is provided a priority to buy its latest green energy luxury model at a cash price of $788,800 (expected retail price $1,088,800, limited to 1 car for each agent), plus one used motor vehicle of any brand name. In order to build up IDCs image in being an advocate for environmentally friendly vehicles, the CEO decides to take the offer and replace one of the oldest vehicles. The cash price is satisfied by $288,800 in cash and a 3-month bank loan at 2.5%.
  1. Paid annual comprehensive insurance of $154,000 for August 2018 to July 2019. The insurance company offered an extension of the coverage from 1 year to 14 months covering August 1st, 2018 to September 30th, 2019
  2. Paid to YoceYoal for the 40 trucks purchased last month, invoice price of each truck was $118,600. A 2% discount was taken due to the earlier payment.
  3. Sold 5 X-class Bercedez-Menz cars to Quick Trans, from the purchase earlier this month, at $388,000 each, terms FOB destination, 1/10, n/EOM.
  1. Received payment from SureWin for the 15 luxury cars sold last month, selling price was $881,288 each, no discount offered.

Returned 1 family car purchased earlier this month to Bercedez-Menz for the scratches found on the doors and paid for the rest from the same batch.

  1. Paid the delivery charge of the sales on the 10th to Quick Trans, $162,000 and purchased supplies of $5,800 on account.

20 GoGoGo, an overseas customer that provides limousine services, reported that one of the luxury family cars bought last month was ofwrong color. After negotiation, it was agreed that IDC would provide an allowance of $20,000. GoGoGo has not paid for the cars yet.

21 Paid the accrued dividends for preference shares.

  1. Received bills for electricity, water and gas, totaled at $118,000 (use a separate payable account). Received payment for the 5 X-class Bercedez-Menz cars sold earlier this month.
  1. Accrued salaries and wages for the month are $720,600 and $650,400 respectively.

28 The prepaid rent was for a showroom in Shanghai, covering 12 months starting from December 1st last year.

31 The notes payable in the trial balance as at July 31st is a one year 2% note. Interest and principal will be paid when the note gets due.

31 Physical inventory shows that the supplies on hand were $9,200.

In addition to the accounts used in the Trial Balance, Innovative Design Corporation also uses the following accounts:

Cost of Goods Sold

Office Salaries Expense

Freight Out Expense

Prepaid Insurance

Depreciation Expense - Building

Prepaid Rent

Depreciation Expense - Motor Vehicle

Rent Expense

Depreciation Expense - Furniture and Fittings

Sales Discounts

Gain on Disposal

Sales Returns & Allowances

Insurance Expense

Sales Revenue

Interest Expense

Short-term Bank Loan

Interest Receivable

Supplies Expense

Interest Revenue

Utilities Expense

Notes Receivable

Wages Expense

Required:

  1. Journalize, in general journal, all August transactions, including ALL necessary adjustments (no need to provide short explanations and round your answers to the nearest dollar).

  1. Prepare an income statement for the month ended August 31st, 2018, and a retained earnings statement for the month ended August 31st, 2018.

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

Financial Accounting Longman Modular Texts In Business And Economics

Authors: Christopher Waterston, Anne Britton

2nd Edition

058238169X, 978-0582381698

More Books

Students also viewed these Accounting questions

Question

We are interviewing quite a few people, why should we hire you?

Answered: 1 week ago