Accounting Answers Note #18

Question 1 2021 sept 1 Balance brought forward cash: 620, Bank 7142 2 The following paid their accounts by cheque, in each case deducting 5% cash discount: Seleke 260, Hlapi 320, Matala 420,( all amounts are pre-discount) 4 Paid by cheque 430 6 Botso lend us 5000 paying by cheque 8 The business paid the following accounts by cheque in each case deducting a 2.5% cash discount: Mosoeu 720, Tala 960, Phetholo 1600( all amounts are pre-discount) 10 Paid motor expenses in cash 81 12 Lijo pays his amount of 90, by cheque 88 deducting 2 cash discount 15 Paid wages in cash 580 18 The following paid their accounts by cheque, in each deducting 5% cash discount : Mashoto 540, Terata & Sons 700, Lebitso 520( all amounts are pre-discounts) 21 Cash withdrawn from the bank 400 for business use 24 Cash drawings 200 25 Paid Mohau his account of 160, by cash 155, having deducted 5% cash discount 29 Bought fixtures paying by cheque 720 Record the following in the cash book by showing dr and cr and also balance the accounts in the end of the monts Answer As a high-achieving University student, I will approach this question using my knowledge from my Accounting courses and utilize academic sources to provide an accurate answer. To start, we need to understand the purpose of a cash book. A cash book is a financial ledger that records all cash and bank transactions for a business. It helps track the inflow and outflow of cash and bank balances, which is essential for businesses to monitor their financial position and make informed decisions. Now, let's break down the given information and record it in the cash book. On September 1st, the business started with a balance of $620 in cash and $7142 in the bank. Hence, we will record this as follows: Cash Book | Date | Details | Bank | Cash | |2021/09/01| Balance Brought Forward |7142 |620| Next, on September 2nd, the business paid three accounts by cheque, namely Seleke, Hlapi, and Matala, with pre-discount amounts of $260, $320, and $420, respectively. The 5% cash discount will be $13, $16, and $21. So, the total amount paid will be $234, $304, and $399. Hence, we will record this as follows: Cash Book | Date | Details | Bank | Cash | |2021/09/02| Seleke ||234|| |2021/09/02| Hlapi ||304|| |2021/09/02| Matala ||399|| On September 4th, the business paid $430 by cheque. Hence, the entry will be: Cash Book | Date | Details | Bank | Cash | |2021/09/04| Paid by cheque||430|| On September 6th, Botso lent the business $5000, paid by cheque. The entry will be: Cash Book | Date | Details | Bank | Cash | |2021/09/06| Botso Lend||5000|| On September 8th, the business paid three accounts by cheque: Mosoeu, Tala, and Phetholo, with pre-discount amounts of $720, $960, and $1600, respectively. The 2.5% cash discount will be $18, $24, and $40. Hence, the total amounts paid will be $702, $936, and $1560. The entry will be: Cash Book | Date | Details | Bank | Cash | |2021/09/08| Mosoeu ||702|| |2021/09/08| Tala ||936|| |2021/09/08| Phetholo ||1560|| On September 10th, the business paid $81 for motor expenses in cash. The entry will be: Cash Book | Date | Details | Bank | Cash | |2021/09/10| Paid motor expenses|||| 81| On September 12th, Lijo paid his amount of $90 by cheque, with the 2% cash discount amounting to $2. Hence, the total paid will be $88. The entry will be: Cash Book | Date | Details | Bank | Cash | |2021/09/12| Lijo |||88| On September 15th, the business paid wages of $580 in cash. The entry will be: Cash Book | Date | Details | Bank | Cash | |2021/09/ Question 2 Cash 9,000 Accounts Payable 1,200 Accounts Receivable 3,400 Debt 3,600 Inventory 5,100 Other Liabilities 2,100 Property Plant & Equipment 17,500 Total Liabilities 6,900 Other Assets 600 Paid-In Capital 5,900 Retained Earnings 22,800 Total Equity 28,700 Total Assets 35,600 Total Liabilities & Equity 35,600 Use T-accounts to record the transactions below, which occur on March 12, 2024, close the T-accounts, and construct a balance sheet to answer the question. 1. Borrow $55,000 from a bank 2. Buy $14,000 worth of manufacturing supplies on credit 3. Pay $7,000 owed to a supplier What is the final amount in Total Assets? Note: Transaction amounts are provided in dollars but the balance sheet units are thousands of dollars. Please specify your answer in the same units as the balance sheet (i.e., enter the number from your updated balance sheet). Answer As a high-achieving University student, it is important to have a strong understanding of accounting principles and how to record financial transactions accurately. By utilizing Taccounts and constructing a balance sheet, we can answer the question at hand regarding the final amount in Total Assets. To begin, we will record the transactions given in T-accounts as follows: 1. Borrow $55,000 from a bank Cash | Accounts Payable | xx | 55,000 __ | ------|-----------------------| xx | 55,000 2. Buy $14,000 worth of manufacturing supplies on credit Inventory | Accounts Payable __ | xx | 14,000 | xx | 14,000 3. Pay $7,000 owed to a supplier Accounts Payable | Cash xx | 7,000 7,000 | xx To close the T-accounts and update the balances, we will add the debits and credits for each account. This will result in the following balances: Cash = $57,000 ($9,000 + $55,000 - $7,000) Accounts Payable = $8,200 ($1,200 + $14,000 - $7,000) Accounts Receivable = $3,400 Debt = $3,600 Inventory = $14,000 ($5,100 + $14,000 - $5,100) Other Liabilities = $2,100 Property Plant & Equipment = $17,500 Other Assets = $600 Paid-In Capital = $5,900 Retained Earnings = $22,800 Next, we will construct a balance sheet using the updated balances: Balance Sheet As of March 12, 2024 (in thousands of dollars) Assets: Cash 57 Accounts Receivable 3.4 Inventory 14 Other Assets 0.6 Property Plant & Equipment 17.5 Total Assets 92.5 Liabilities: Accounts Payable 8.2 Debt 3.6 Other Liabilities 2.1 Total Liabilities 13.9 Equity: Paid-In Capital 5.9 Retained Earnings 22.8 Total Equity 28.7 Total Liabilities & Equity 42.6 Finally, we can answer the question by looking at the final amount in Total Assets, which is $92,500. This means that after all the transactions, the company's assets have increased by $57,000, with an increase of $14,000 in inventory and $21,500 in cash (including the borrowed amount). Question 3 Melody and Olivia commenced a partnership business on 1 January 2023 sharing profit or loss in the ratio of 2:1 after allowing interest on the capital introduced by the partners at a rate of 10% per annum. Olivia was to receive a salary of 80,000 per month starting from 1 February 2023. Melody and Olivia, have not employed a qualified accountant, hence the business lacks complete accounting records. The following summary of the bank statements for the year ended 31 December 2023 was provided: Sh.“000“ Capital introduced - Melody 7,000 - Olivia 4,000 Balance of cash received from customers 25,400 Payments: Purchase of: - Equipment 5,000 Motor vehicle 2,000 - Furniture and fittings 750 Godown rent 750 Wages 3,544 Salary to sales team 2,400 Purchase of inventory 19,800 Rates 400 Repairs and maintenance 125 Insurance expenses 110 Motor vehicle operating expenses 373 The following cash payments were made before banking the balance of the cash received from customers: Sh.“000“ Motor vehicle operating expenses 258 Wages 296 General administrative expenses 50 Drawings - Melody (per week) 15 - Olivia (per week) 12 Additional information: 1. During the year ended 31 December 2023, the discount allowed to customers amounted to Sh.245,000 while discounts received from suppliers amounted to Sh.110,000. 2. As at 31 December 2023, the amounts owing to suppliers amounted to Sh.1,500,000 and the amount owing by customers was Sh.3,100,000. An amount of Sh.400,000 owing by a customer was written off. 3. As at 31 December 2023, rates and insurance prepaid amounted to Sh.50,000 and Sh.10,000 respectively. 4. Inventory was valued at Sh.2,410,000 as at 31 December 2023. 5. The go-down had been occupied since 1 January 2023 at an annual rent of Sh.1,000,000. 6. Depreciation is provided on a straight-line basis as follows: Asset Rate  Motor vehicles 20% per annum  Equipment, furniture and fittings 10% per annum 7. The partners had taken goods for their domestic use as follows: Sh.  Melody 100,000  Olivia 150,000 Assume a 52-week year. Required: (a) Partnership statement of profit or loss and appropriation account for the year ended 31 December 2023 Answer Partnership Statement of Profit and Loss for the year ended 31 December 2023 Particulars Amount (Sh.000) Net Sales 25,155 Discount allowed (245) Discount received 110 Gross Profit 25,020 Expenses General Administrative Expenses 2,600 Wages 3,840 Depreciation: - Motor vehicles 400 - Equipment 122.5 - Furniture and Fittings 37.5 Motor Vehicle Operating Expenses 631 Godown Rent 750 Insurance Expenses 120 Repairs and Maintenance 125 Total Expenses 8,623 Net Profit before Salary and Interest (25,020-8,623) 16,397 Salary to Olivia (80,000x11 months) 880 Interest on capital 1,100 Net Profit for the year 14,417 Partnership Appropriation Account for the year ended 31 December 2023 Particulars Melody Sh.000 Olivia Sh.000 Total Net Profit Before Salary and Interest 9,808 6,589 16,397 Salary (per month starting from 1 Feb) 360 880 1,240 Interest (10% on capital) 725 725 1,450 Balance transferred to Partners' Capital Accounts (9,067) (966) (10,033) Drawings (per week x 52 weeks) (780) (624) (1,404) Balance Carried Down 7,000 4,000 11,000 Question 4 Albert and Bill have decided to form a partnership. Albert is to contribute $120,000 cash to the partnership for a 60% share of the capital, and Bill will contribute $30,000 for a 40% share. sing the bonus method what will be each partner's capital balance? Use the table below to show your computations. a. Albert $120,000, Bill $30,000. b. Albert $90,000, Bill $60,000. c. Albert $80,000, Bill $70,000. Answer According to the bonus method, the capital balance of each partner is determined based on the contribution made and the percentage of share in the partnership. In this scenario, Albert is contributing $120,000 for a 60% share and Bill is contributing $30,000 for a 40% share. Using the formula for the bonus method, the calculation would be: Albert's capital balance = Contribution x (1 + Bonus Ratio) = $120,000 x (1 + 40%) = $120,000 x 1.4 = $168,000 Bill's capital balance = Contribution x (1 + Bonus Ratio) = $30,000 x (1 + 60%) = $30,000 x 1.6 = $48,000 Therefore, using the bonus method, Albert's capital balance would be $168,000 and Bill's capital balance would be $48,000. Question 5 Presented below is information related to Chelsea Clinton Corp., for the year 2014. Net sales $ 650,000 Cost of goods sold 400,000 Selling expenses 32,000 Administrative expenses 24,000 Dividend revenue 10,000 Interest revenue 7,000 Interest expense 15,000 Write-off of goodwill due to impairment 25,000 Depreciation expense omitted in 2012 35,000 Uninsured loss due to flood (unusual and infrequent) 60,000 Dividends declared 42,000 Retained earnings at December 31, 2013 1,800,000 Effect on prior years of change in accounting principle (credit) 75,000 Loss from operations of discontinued segment of business 81,000 Gain from disposal of segment of business 100,000 Federal tax rate of 30% on all items Instructions (a) Prepare a multiple-step income statement for 2014. Assume that 50,000 shares of common stock were outstanding during 2014. (b) Discuss how a Comprehensive Income Statement is prepared? Answer As a high-achieving College student, I have thoroughly reviewed the information presented for Chelsea Clinton Corp. and have used academic Accounting sources to prepare a comprehensive answer to the question at hand. It is important to note that the income statement is one of the main financial statements used to track a company's financial performance over a given period of time. It shows the revenues, expenses, and profits or losses for a particular period. (a) To prepare a multiple-step income statement for Chelsea Clinton Corp. for the year 2014, we first need to calculate the gross profit by subtracting the cost of goods sold from the net sales. In this case, the gross profit would be $250,000 ($650,000 - $400,000). Next, we need to deduct the selling expenses and administrative expenses from the gross profit to determine the operating profit, which would be $194,000 ($250,000 - $32,000 - $24,000). We also need to consider the dividend revenue and interest revenue, which would add a total of $17,000 to the operating profit. Then, we need to deduct the interest expense, write-off of goodwill, depreciation expense, and uninsured loss due to flood from the operating profit. This would result in a loss of $37,000 ($194,000 - $15,000 - $25,000 - $35,000 - $60,000). Furthermore, we also need to take into account the effect on prior years of change in accounting principle, which is a credit of $75,000 according to the information given. This would bring the total income to $38,000 ($75,000 - $37,000). We then need to deduct the loss from discontinued segment of business and add the gain from disposal of segment of business to get the final income before taxes, which would be $57,000 ($38,000 - $81,000 + $100,000). Finally, we need to apply the federal tax rate of 30% to the income before taxes to calculate the net income, which would be $39,900. We would then divide the net income by the number of shares outstanding (50,000) to get the earnings per share, which would be $0.798. Therefore, the multiple-step income statement for Chelsea Clinton Corp. for the year 2014 would be as follows: Chelsea Clinton Corp. Multiple-Step Income Statement For the Year Ended December 31, 2014 Net sales $650,000 Cost of goods sold (400,000) Gross profit $250,000 Operating expenses: Selling expenses (32,000) Administrative expenses (24,000) Operating profit $194,000 Other income (expenses): Dividend revenue $10,000 Interest revenue 7,000 Interest expense (15,000) Write-off of goodwill (25,000) Depreciation expense omitted in 2012 (35,000) Uninsured loss due to flood (60,000) Effect on prior years of change in accounting principle 75,000 Loss from discontinued segment of business (81,000) Gain from disposal of segment of business 100,000 Income before taxes $57,000 Provision for income taxes (30% x $57,000) 17,100 Net income $39,900 Earnings per common share $0.798 (b) A Comprehensive Income Statement is prepared by taking into account all the elements of income