Question 1

Jazz Manufacturing Limited purchased a new piece of machinery on January 1, 2019 for $150,000. The machinery has a useful life of 5 years or 1,300,000 units and management estimates they will be able to sell it for $20,000 at the end of its useful life. The machinery produced 275,000 units in 2019, 280,000 units in 2020, 250,000 units in 2021 & 200,000 units in 2022.

Required:

1. Calculate the depreciation expense for 2019, 2020, 2021 & 2022 using

a) straight line method

b) Units of production method and

c) Double-declining balance method

2. Assume that Jazz Manufacturing sold the machinery on January 1, 2022 for $50,000. What is the gain or loss on the sale?

3. Prepare the journal entry to record the sale of the machinery on January 1, 2022.

Question 2

The following information has been gathered to assist you in deciding whether to make a short-term loan to Socks & Gizmo Limited.

Additional information:

Dividends declared & paid in 2021 $40,000

Number of shares outstanding at October 31, 2021 12,500

Market price per share at October 31, 2021 $ 30.00

Selected Data from the October 31, 2020 financial statements:

Accounts receivable, net 61,500

Inventory 85,000

Total assets 648,900

Accounts payable 151,200

Total shareholders equity 116,250

Industry averages -2021 Socks & Gizmo Limited

2020

Gross profit margin ratio 60.00% 62.00%

Return on sales (net profit margin) 9% 10.00%

Return on total assets 16% 17%

Debt ratio 0.6 0.61

Current ratio 1.5 1.4

Asset turnover 2.1 1.4

Quick Ratio 1 0.8

Earnings per share 6 6.3

Dividend Yield 0.1 0.09

Required:

1. Calculate 12 ratios for the year ended October 31, 2021 for Socks & Gizmo Limited using the ratio sheet provided in Moodle. You may calculate any 12 you wish.

2. Discuss 4 ratios calculated in part 1.

3. Based on the ratios you discussed in Part 2 would you be willing to give Socks & Gizmo Limited a short-term loan? Why or why not?

Question 1 Jazz Manufacturing Limited purchased a new piece of machinery on January 1, 2019 for $150,000. The machinery has a useful life of 5 years or 1,300,000 units and management estimates they will be able to sell it for $20,000 at the end of its useful life. The machinery produced 275,000 units in 2019, 280,000 units in 2020, 250,000 units in 2021 & 200,000 units in 2022. Required: 1. Calculate the depreciation expense for 2019, 2020, 2021 & 2022 using a) straight line method b) Units of production method and c) Double-declining balance method 2. Assume that Jazz Manufacturing sold the machinery on January 1, 2022 for $50,000. What is the gain or loss on the sale? 3. Prepare the journal entry to record the sale of the machinery on January 1, 2022. Question 2 The following information has been gathered to assist you in deciding whether to make a short-t loan to Socks & Gizmo Limited. Socks & Gizmo Limited Income Statement Year Ended October 31, 2021 2021 Sales Cost of goods sold $ 800,000 300,000 500,000 Selling & Admin Depreciation expense Advertising Office expenses Utilities expense Salary expense Insurance expense 12,000 22,000 32,000 24,000 290,000 5,000 Interest expense Income before income taxes Income tax expense Net income 385,000 115,000 18,000 97,000 12,000 85,000 Styles Socks & Gimo Limited Balance Sheet October 31, 2021 $ ASSETS Current Assets Cash Accounts receivable Allowance for doubtful accounts Inventory Prepaid expenses 87,000 9,800 Property, plant & equipment Accumulated depreciation - PPE 600,000 100,000 LIABILITIES AND SHAREHOLDERS'EQUITY Current Liabilities 32,600 Accounts payable $ 176,800 Salary payable 6,000 77,200 Income taxes payable 12,000 120,000 194,800 1,250 231,050 Note payable 375,000 TotalLiabilities 569,800 500,000 Shareholders'Equity 731,050 Common shares 25,000 Retained earnings 136,250 Total shareholders equity 161,250 TOTAL LIABILITIES & SHAREHOLDERS EQUITY $ 731,050 $ Additional information: Dividends declared & paid in 2021 Number of shares outstanding at October 31, 2021 Market price per share at October 31, 2021 $40,000 12,500 $ 30.00 Selected Data from the October 31, 2020 financial statements: Accounts receivable, net 61,500 Inventory 85,000 Total assets 648,900 Accounts payable 151,200 Total shareholder's equity 116,250 Industry averages -2021 Socks & Gizmo Limited 2020 60.00% 62.00% 9% 10.00% 16% 17% Gross profit margin ratio Return on sales (net profit margin) Return on total assets Debt ratio Current ratio Asset turnover Quick Ratio Earnings per share Dividend Yield 0.6 0.61 1.5 2.1 1 6 1.4 1.4 0.8 6.3 0.1 0.09 Required: 1. Calculate 12 ratios for the year ended October 31, 2021 for Socks & Gizmo Limited using the ratio sheet provided in Moodle. You may calculate any 12 you wish. 2. Discuss 4 ratios calculated in part 1. 3. Based on the ratios you discussed in Part 2 would you be willing to give Socks & Gizmo Limited a short-term loan? Why or why not