ASSIGNMENT 1

AP1-5A

a.  Accounts payable CL
b.  Rent revenue SI
c.  Unearned revenue CL
d.  Property, plant, and equipment NCA
e.  Short-term investment in the shares of another company CA
f.  Sales to customers SI
g. Repayment of the principal of a loan owed to a financial institution SCF
h. Payment of interest on a loan owed to a financial institution SI
i.  Common shares SC
j.  Cash CA
k. Loan payable (debt due in 10 years) NCL

CA Current assets RE Retained earnings

NCA Non-current assets SI Statement of income item
CL Current liabilities SCF Statement of cash flows item
NCL Non-current liabilities SCE Statement of changes in equity item
SC Share capital

AP1-8A

a. Temporary investments SFP

b. Repurchase of shares issued 10 years ago N
c. Goodwill SFP
d. Rent revenue SI
e. Goods held for resale to customers SFP
f. Retained earnings SFP
g. Interest expense SI
h. Increase in accounts receivable N
i. Depreciation expense SI
j. Gain on sale of equipment SI

Financial position (SFP), statement of income (SI), both the statement of financial position and
statement of income (B), or neither statement (N)

1
UP 1-5

DISTRIBUTION OF DIVIDEND TO SHAREHOLDERS

If the Board plans to expand business in future, then they will have to keep the retained earnings. As
the declared dividend will reduce retained earnings. It can declare dividend if their retained earnings are
more than the proposed dividend and will not detract business plans.

The board should also keep in consideration the liquidity requirement for the day to day operations of
the business, they will have to decide whether the company have enough cash available to make
dividend payments. If not, then the company will have to generate enough cash to pay dividend and day
to day business operations without delay or hurdles.

1. On January 1, the company issued 10,000 common shares for $250,000.

2. On January 2, the company borrowed $50,000 from the bank.

3. On January 3, the company purchased land and a building for a total of $200,000 cash. The land was

recently appraised at a fair market value of $60,000. (Note: Because the building will be depreciated

in the future and the land will not, these two assets should be recorded in separate accounts.)

4. Inventory costing $130,000 was purchased on account.

5. Sales to customers totalled $205,000. Of these, $175,000 were sales on account.

6. The cost of the inventory that was sold to customers in transaction 5 was $120,000.

7. Payments to suppliers on account totalled $115,000.

8. Collections from customers on account totalled $155,000.

9. Payments to employees for wages were $55,000. In addition, there was $2,000 of unpaid wages at

year end.

10. The interest on the bank loan was recognized for the year. The interest rate on the loan was 6%.

11. The building was estimated to have a useful life of 30 years and a residual value of $20,000. The

company uses the straight-line method of depreciation.

12. The company declared dividends of $7,000 on December 15, 2020, to be paid on January 15, 2021.

2
AP2-14A

(TRANSACTION ANALYSIS AND FINANCIAL STATEMENT PREPARATION)

Shareholder’s
Assets Liabilities
Equity
Date Cash A/R Inv. Building Land A/P Wages Interest Dividends Bank Common R/E Rev/Exp/
Payable Payable Payable Loan Shares DD
Payable
Jan 1 $250,000 $ 250,000
Jan 2 50,000 $
50,000
Jan 3 (200,000 $140,00 $60,000
) 0
4 $130,000 $130,000
5 30,000 $175,000 $ 205,000 Rev
6 (120,000) (120,000) Exp
7 (115,000 (115,000
) )
8 155,000 (155,000)
9 (55,000) $ 2000 (57,000) Exp
10 $ 3000 (3000) Exp
11 (4,000) (4,000) Exp
Dec 15 7000 (7000) DD
115,000 20,000 10,000 136,000 60,000 15,000 2,000 3,000 7,000 50,000 250,000 14,000
341,000 341,000

Calculations:
Bank interest= 50,000*6%= 3000
Depreciation = 140,000-20,000/ 30 = 4000

SINGH COMPANY
STATEMENT OF INCOME
FOR THE YEAR ENDING DECEMBER 31, 2020
3
 Revenues
Sales revenue $ 205,000

Expenses
Cost of Goods Sold $120,000
Wages 57,000
Interest 3,000
Depreciation 4,000 184,000

Net Income 21,000

SINGH COMPANY
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDING DECEMBER 31, 2020

Common Shares Retained Earnings Total Equity

Balance at beginning of the year $ 0 $ 0

Shares issued $ 250,000 250,000
Net income 21,000 21,000
Dividends (7,000) (7,000)
Ending Balance $ 250,000 $ 14,000 $ 264,000

4
 SINGH COMPANY
STATEMENT OF FINANCIAL POSITION
AS AT DECEMBER 31, 2020

ASSETS
Cash $ 115,000
Account receivable 20,000
Inventory 10,000
Land 60,000
Building 136,000
TOTAL ASSETS 341,000
LIABILITIE
S
Accounts payable 15000
Wages payable 2000
Interest payable 3000
Dividends payable 7000
Loan payable 50,000
TOTAL LIABILITES 77,000

SHARE HOLDERS EQUITY

Common Shares 250,000
Retained Earnings 14000
TOTAL SHAREHOLDERS EQUITY 264,000

TOTAL LIABILITIES AND SHAREHOLDER EQUITY 341,000

5
 SINGH COMPANY
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDING DECEMBER 31, 2020

CASH FLOW FROM OPERATING ACTIVITIES

Cash collection from customers $ 185,000
Cash payment to suppliers (115,000)
Cash payment for wages (55,000)
Cash flow from operating activities 15,000

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of land and building (200,000)
Cash used in investing activities (200,000)

CASH FLOW FROM FINANCING ACTIVIES

Cash received from issuance of shares $ 250,000
Cash from bank Loan 50,000
Cash from financing activities 300,000

Increase in cash 115,000

Cash beginning of the year 0
Cash end of the year 115,000

6
AP2-2B (Cash basis versus accrual basis)
Based on the following transactions, calculate the revenues, expenses, and net income that would be
reported on (a) the cash basis and (b) the accrual basis:
1. a. Inventory on credit will have no impact on Net income

b. No impact on net income, only A/P (Assets) and Inventory (Liabilities)

2. a. In cash basis, it will be recorded as Revenue 80,000 (80% of 100,000) and increase to 80,000 to Net

income.

b. Revenue recorded as 100,000, CGS 60,000 and 40,000 increase is net income.

3. a. increase to net income of 20,000 as of revenue will be recorded.

b. No effect on net income

4. a. Expenses recorded as 13,000 and decrease to net income for 13,000

b. Expenses recorded as 12,000 and decrease to net income for 12,000

5. a. Expenses recorded as 5,500 and a decrease to net income of 5,500

b. Expenses recorded as 5,000 and a decrease to net income of 5,000

6. a. Wages expense recorded as 37,500 And decrease to net income by 37,500

b. Wages expenses recorded as 38,000 and a decrease to net income by 38,000

Cash Basis Accrual Basis

Revenues Expenses Revenues Expenses
1.
2. $ 80,000 $ 100,000 $ 60,000
3. 20,000
4. $ 13000 12000
5. 5500 5000
6. 37500 38000
$ 100,000 $ 56000 $ 100,000 $115000

Net income $ 44,000 Net loss $ 15000

7
 UP2-3

(Areas of risk in a new company)

First, I would like to know its payment and length of credit history with the bank. I will compare schedule
of his installments with the bank and their actual time of payment. If the company is regular in its
payments for longer period, it will be a positive sign.
Second, I will investigate profitability of the company through profitability ratio analysis. Higher margin
and return ration will indicate its ability to pay debts in time.
Third, I will analyze their assets and liabilities and check what other liabilities the company have that
require repayment. I will also investigate the market value of their fixed assets, depreciation of those
assets, their residual value and useful life. Higher is the assets to liability ratio, will indicate its ability to
pay off credit easily.

AP3-8A

(Journal entries and adjusting entries)

Sept 1 Dr Vehicles $ 80,0000

Cr Cash 30,000
Cr Notes payable 50,000
Purchase of delivery truck on cash and credit
Sep 1 Dr Prepaid Insurance 2,400
Cr Cash 2,400
Paid for insurance policy of the delivery truck
Sept 5 Dr Inventory 13,000
Cr Accounts Payable 13,000
Purchase inventory on Credit
Sept 12 Dr Cash 7,500
Cr Unearned Revenue 7,500
Revenue from Pinamalas university contract
Sept 18 Dr Cash 12,000
Dr Accounts Receivable 4,000
Cr Sales 16,000
Sales of office supplies
Sept 18 Dr Cost of goods sold 10,500
Cr Inventory 10,500
Cost of goods sold of office supplies.
Sept 30 Dr Dividend Payable 15,000

8
 Cr Cash 15,000
Dividends paid

Adjusting Entries

Sept 30 Dr Depreciation Expense 1000

Cr Accumulated depreciation 1000
Adjustment to the depreciation
Sept 30 Dr Interest Expense 375
Cr Interest payable 375
Interest carried forward
Sept 30 Dr Insurance Expense 200
Cr Prepaid insurance 200
Insurance paid in this term

Calculations:

1) Depreciation: 80,000-8000/6= 12,000/ year, and 1,000/ month

2) Interest: 50,000 * 9%= 4500/ year, 375/ month.
3) Insurance Policy: 2400/12= 200/month

AP3-13A

Jan 1 Dr Prepaid Insurance $ 3,900

Cr Cash 3,900
Cash paid for three years insurance
2 Dr Inventory 120,000
Cr Accounts Payable 120,000
Purchased uniform inventory on credit
3 Dr Accounts Receivable 180,000
Cr Sales Revenue 180,000
Sales uniform on credit
3 Dr Cost of Goods Sold 100,000
Cr Inventory 100,000
Cost of sales made on 3rd Jan
4 Dr Cash 130,000
Dr Accounts Receivable 390,000
Cr Services 520,000
Services performed partly received payment
5 Dr Accounts Payable 130,000
Cr Cash 130,000
Paid to creditor
6 Dr Cash 246,000

9
 Cr Accounts Receivable 246,000
Cash received from debtors
7 Dr Advertising Expense 12,000
Cr Cash 12,000
Paid for advertisements
8 Dr Interest Expense 10,500
Dr Bank loan 30,000
Cr Cash 40,500
Paid interest on bank loan
9 Dr Cash 3000
Cr Dividend revenue 3000
Received dividend on investments
10 Dr Utilities Expense 15,000
Cr Cash 15,000
Payment of utilities of a year
11 Dr Dividend Declared 12000
Cr Cash 12000
Declared and paid dividends
12 Dr Wage Payable 8000
Dr Wages Expense 94,000
Cr Cash 102,000
Payment of wages for this year and outstanding
12 Dr Wages Expense 2,000
Cr Wages Payable 2,000
Wages payable carried forward
13 Dr Depreciation Expense 30,000
Cr Accumulated Depreciation Equipment 30,000
Depreciation of the equipment in a year
14 Dr Insurance Expense 1,300
Cr Prepaid insurance 1,3000
Adjustment to the insurance expired in 2020

Calculation:
Depreciation Equipment: $ 330,000-$30,000/10= $ 30,000
Adjustment to Prepaid insurance = $3900/3= $ 1300

10