COURSE REVIEW EXERCISE 2

QUESTION 1:

On January 1, 20X0, a company has assets of 150,000 currency units (CU onwards) and
liabilities of CU90,000. It is currently selling assets for CU50,000 cash. These assets
were valued at a carrying amount of CU30,000. The cash obtained from the sale is used
to pay liabilities. After carrying out these operations, what is the amount of the
liabilities? And what proportion of the assets will be financed with liabilities? How has
it changed since the beginning of the year?

QUESTION 2:

What is the effect on assets, liabilities, equity, cash, and net profit the following
transaction by a trading company: The company reduces share capital by CU60,000.
returning cash to its shareholders.

QUESTION 3:

The commercial company "Action, S.L." presents the following information as of today:

Accounts Amount Debit Credit

Land 5.000
Accumulated depreciation on tangible 10.000
Buildings 40.000
Accounts receivables 2.000
Account receivables impairment 200
Reserves 50.000
Accounts payables – suppliers 3.000
Computers 5.000
PC software 1.000
Accumulated depreciation on intangible 600
Inventory impairment 1.000
Capital ¿?
Net profit (credit balance) 2.000
Furniture 15.000
Inventory 5.000
Long term debt 10.000
Short term debt 15.000
Cash and equivalents 37.000
TOTAL

With the above information, complete the balances in the column that corresponds
according to the nature of the account ("Debit" or "Credit") and determine the balance
of the "Capital" account.
QUESTION 4:

At the beginning of 20X7 a company had receivables from doubtful customers (i.e.
customers expected not to pay their debts) totaling CU100,000. that were completely
impaired (null book value). The company records the risk of bad debts by the individual
method.

During 20X7, the previous doubtful customer pays CU30,000. and the remaining
balance is definitely lost.

With this information, what effect does the above information have on profit or loss for
the year 20X7?

QUESTION 5:

On July 1, 20X3, a company purchases real estate for a purchase price of CU200,000,
which is recognized in property, plant and equipment. Of this amount, CU50,000
correspond to the land and the rest to the building. In October 20X3 the property was
painted. The price paid for this work has been CU5,000.

The useful life has been estimated at 25 years with zero residual value. The land carries
no depreciation. The fiscal year ends on December 31, 20X3. With this information
complete the following table:

Amount
Value of the tangible asset on the 1 July
st

20X3
Value of the tangible on the 31st
December 20X3
Effect on net income on the 31st
December 20X3

QUESTION 6:

Explain what the following journal entry made in the journal book of the company "Pi,
S.A." (in CU) indicates.

Cuentas Debe Haber

Suppliers 5.000
Inventory return 5.000
Change in inventory 5.000
Inventory 5.000
QUESTION 7:

A commercial company that registers its operations through the periodic inventory
system presents the following file with the movements of the warehouse:

Operation Units Price per unit

Initial inventory 1.000 $10 /unit
Purchases 1.000 $11/ unit
Sales 1.600 $20/ unit

The valuation of inventories is carried out by applying the weighted average cost
method. The net realizable value of the ending stock is $10 / unit and the expected
selling expenses have been calculated at $0.5 / unit. At the beginning of the year, there
was an impairment of inventories of CU50.

With this information, indicate what annotations should be made at the end of the year
due to the variation in inventories and, where appropriate, the accounting for
impairment. Also determine what would be the gross margin achieved by the company
for the operations carried out in the year.

QUESTION 8:

The commercial company "Alfa, S.L." presents the financial statements for the 1 st
January, 2005.

Balance Sheet
1/1/200
5
Assets
Land 5000
Buildings 40000
Furniture 10000
Transportation items 20000
Inventory 12000
Accounts receivables 5000
Accumulated depreciation of all items 12000
Cash 16000

Total assets 96000

Liabilities
Long term debt 25000
Short term debt 10000
Accounts payables 3000
Unearned revenue 2000
 Shareholders'equity
Capital 5000
Reserves 22000
Net profit 29000

Total Shareholders' equity and

liabilities 96000

Profit and Loss statement

Sales 90000
Less COGS:
Purchases 28000
Change in inventory (opening -closing ) 6000
COGS -34000
Gross profit 56000
Less operating expenses:
Salaries and wages 12000
Social security contributions expense
company 3000
Other operating intems 10000 -25000
Operating profit (EBIT) 31000
Financial expenses:
Interest expenses 2000
Profit before taxes 29000

Throughout the year, the following transactions have taken place.

1. You have bought goods on credit for CU10,000. The company records operations
using the perpetual inventory method. In addition, it has paid CU1,000 for
transportation costs and customs duties (customs).

2. The payroll for the period has the following detail:

• Wages and salaries, CU8,000.

• Social security payable for the company, CU2,000.
• Social security payable for the employees, CU300.
• Withholdings on account of the I.R.P.F. CU500
The only amounts not yet been paid are the contributions with Social Security and tax
withholdings. In addition, you have paid CU500 to a worker for family help.

3. The unearned revenue in the balance sheet expires and recorded as commissions.

4. For the calculation of depreciation, the following data are known:

• The company applies the straight line method for buildings (20 years) and furniture (5
years), both cases without residual value.
• Transportation items are depreciated on the straight-line method with a useful life of
10 years and residual value CU2,000.

5. At the end of the fiscal year, the risk of bad debts is at 5% of the sales for the period.

6. The net realizable value of the inventory in the warehouse is CU24,000.

7. The income tax has been calculated at CU3,000.

WORK TO BE DONE: Prepare the balance sheet and the profit and loss account for
the year ending December 31, 20X5, considering the effect of the operations pending.