Question 1

Recording Transactions and Preparing Financial Statements

Part I Recording Transactions and Preparing Financial Statements Chantel Ltd is a clothing wholesaler: which has been operating for only one year. At the beginning of its second year of operations: it has the following items on its balance sheet: ASSETS Invento SHAREHOLDERS' LIABILITIES Fixed Assets Opening balances Purchase inventoor Sales: credit Cost of sales Insurance Advertismg Purchase storage fac. Salaries Interest Pay accounts payable Collect accounts rec. Tax Dividend Transfer retained earnmgs Clos balances Cash Comm Stock 2 EQUITY Ret Income Earning State Bank Loan Payable Tax Pay able Dividends Payable Fixed Assets Share Capital Retained Earnings year Bank Loan 2,000 1,000 soo soo 2,000 During the second year, the company undertakes the following transactions- Purchases stock (clothing) for $500, on credit Sells stock, which originally cost $500, for Sl:200_ Half of the customers buy on credit and the other half pays in cash. Pays SIOO for advertising and $50 for insurance. The advertising is paid in cash: but the insurance agency gives credit. Purchases a new storage facility for $800, on credit 4 Pays the warehouse employees $100 in cash. Pays interest of 10% on its loan, m cash. Pays SSCIO to its trade creditors] 7 _ Receives $300 from Its customers. Chantel ' s accountant calculates that as a result of the above transactions: the company will have to pay tax of SIOO. 10. Finally: the board of directors decides to pay a dividend of S75 (the dividend is not paid by the end of the fiscal year). On the following page, you are given a worksheet for Chanters second fiscal year. Fill in the opening balances (from die end of the first year) and record the transactions during the second year _ Calculate closing balances and then: using die formats given: constmct a closing balance sheet and an income statement.