FIN 211 – Tutorial 4

Question 1

Mark each of the accounts listed in the following table as follows:

a) In column (1), indicate in which statement – income statement (IS) or balance sheet (BS) – the
account belongs.
b) In column (2), indicate whether the account is a current asset (CA), current liability (CL), expense (E),
fixed asset (FA), long term debt (LTD), revenue (R), or stockholders’ equity (SE) – also referred to as
shareholders equity.

(a) (b)
Account Name Statement Type of Account
Accounts payable
Accounts receivable
Accruals
Accumulated depreciation
Administrative expense
Buildings
Cash
Common stock (at par)
Cost of goods sold
Depreciation
Equipment
General expense
Interest expense
Inventories
Land
Long-term debt
Machinery
Marketable securities
Notes payable
Operating expense
Paid-in capital in excess of par
Preferred stock
Preferred stock dividends
Retained earnings
Sales revenue
Selling expense
Taxes
Vehicles
Question 2

On December 31, 2011, Cathy Chen, a self employed certified public accountant (CPA), completed her
first full year in business. During the year, she billed R360,000 for her accounting services. She had two
employees, a bookkeeper and a clerical assistant. In addition to her monthly salary of R8,000, Ms Chen
paid annual salaries of R48,000 and R36,000 to the bookkeeper and the clerical assistant, respectively.
Employment taxes and benefit costs for Ms Chen and her employees totaled R34,600 for the year.
Expenses for office supplies, including postage, totaled R10,400 for the year. In addition, Ms Chen spent
R17,000 during the year on tax-deductible travel and entertainment associated with client visits and
new business development. Lease payments for the office space rented (tax-deductible) were R2700 per
month. Depreciation expense on the office furniture and fixtures was R15,600 for the year. During the
year, Ms Chen, paid interest of R15,000 on the R120,000 borrowed to start the business. Taxes during
the year is 30%.

a) Prepare an income statement for the year ended 31 December 2012.

b) Evaluate her 2011 financial performance

Question 3

Philagem Inc., ended 2011 with a net profit before taxes of R218,000. The company is subject to a 40%
tax rate and must pay R32,000 in preferred stock dividends before distributing any earnings on the
85,000 shares of common stock (also referred to as ordinary shares) currently outstanding.

a) Calculate Philagem’s 2011 earnings per share (EPS)

b) If the firm paid common stock dividends of R0.80 per share, how many rands would go to retained
earnings?