Accounting Answers Note #4

Question 1 the data below relates to faith incorperation business activities for the mont of april 2021 beginning merchandize april 1 --$101,000, purchase form xyz in the usa april 15th, $900,000, purchase from ppc limited usa on april 17th $950,000. purchase discoount term 1/15 n/45 applies to all the purchases made from both xyz and ppc limited. purchase return and allowances represents 5% of the total merchandise purchase during the month. transportation in paid onbehalf of faith by xyz incorporated is $10,000. transportation out paid by ppc limited was $11,000. ending merchandising amount as at april 30th represents 12.5% of total cost of good available for sales during the period. faith incoperation paid the total amount due to both xyz and ppc limited on 25th April 2021. you are required to determined the cost of the merchandize sold for april 2021 for the books of faith incorporation. Answer Based on the data provided, the cost of merchandise sold for April 2021 for the books of Faith incorporation can be determined by following these steps: 1. Calculate the total cost of goods available for sale by adding the beginning merchandise amount, purchases from XYZ and PPC Limited, and transportation costs paid by Faith incorporation. 2. Subtract the total purchase returns and allowances (5% of total merchandise purchases) from the cost of goods available for sale to get the net cost of goods available for sale. 3. Calculate the total purchase discounts by multiplying the net cost of goods available for sale by the discount rate of 1/15. 4. Subtract the total purchase discounts from the net cost of goods available for sale to get the cost of goods sold. 5. Calculate the ending merchandise amount by multiplying the cost of goods available for sale by the percentage represented on April 30th (12.5%). 6. Subtract the ending merchandise amount from the cost of goods sold to get the final cost of merchandise sold for April 2021. Therefore, the cost of merchandise sold for April 2021 for the books of Faith incorporation is $1,013,000. Question 2 1-Jan Jack Strange, the owner, invested $50,000 in the business. 5-Jan Purchased equipment for $100,000 on account from The Gotham Company. 8-Jan Incurred advertising expense of $1,800 on account from Mr. Freeze Agency. 11-Jan Paid salaries to employees, $1,500 12-Jan Paid the cell phone bill, $200. 13-Jan Paid $1,500 for a 1-year insurance policy. 17-Jan Jack Strange withdrew $600 cash for personal use. 20-Jan Received $5,700 in cash for admission fees. 22-Jan Billed corporate customers $3,000 for using the park earlier today. 25-Jan Collected $2,500 from customers in advance of using the park. 30-Jan Paid $700 on account for the advertising incurred back on January 8. The following accounts are used in the Super Hero Theme Park: Cash, Accounts Receivable Prepaid Insurance Equipment Accounts Payable Unearned Admission Revenue Jack Strange, Capital Jack Strange, Drawing Admission Revenue Advertising Expense Salaries Expense Telephone Expense Complete the following: Journalize the January transactions. Post transactions to the General Ledger. Prepare a Trial Balance. Prepare an Income Statement. Prepare a Statement of Owner’s Equity. Prepare a Balance Sheet. Answer To properly journalize the January transactions, we must first follow the fundamental rule of double-entry accounting, where every transaction must have equal debits and credits. In this case, we will use the accounting equation: Assets = Liabilities + Owner's Equity. 1-Jan: Jack Strange invested $50,000 in the business, increasing the assets and owner's equity by $50,000. The journal entry for this transaction would be: Cash $50,000 Jack Strange, Capital $50,000 5-Jan: The company purchased equipment on account for $100,000 from The Gotham Company, increasing the assets and liabilities by $100,000. Equipment $100,000 Accounts Payable $100,000 8-Jan: Incurred advertising expense of $1,800 on account from Mr. Freeze Agency, increasing the expenses and liabilities by $1,800. Advertising Expense $1,800 Accounts Payable $1,800 11-Jan: Paid salaries to employees for $1,500, decreasing the assets and owner's equity by $1,500. Salaries Expense $1,500 Cash $1,500 12-Jan: Paid cell phone bill for $200, decreasing the assets and cash by $200. Telephone Expense $200 Cash $200 13-Jan: Paid for a 1-year insurance policy for $1,500, increasing the prepaid insurance asset and decreasing the cash asset by $1,500. Prepaid Insurance $1,500 Cash $1,500 17-Jan: Jack Strange withdrew $600 cash for personal use, decreasing the cash and owner's equity by $600. Jack Strange, Drawing $600 Cash $600 20-Jan: Received $5,700 in cash from admission fees, increasing the cash and unearned admission revenue by $5,700. Cash $5,700 Unearned Admission Revenue $5,700 22-Jan: Billed corporate customers $3,000 for using the park earlier that day, increasing the assets and revenue by $3,000. Accounts Receivable $3,000 Admission Revenue $3,000 25-Jan: Collected $2,500 from customers in advance of using the park, increasing the cash and decreasing the unearned admission revenue by $2,500. Cash $2,500 Unearned Admission Revenue $2,500 30-Jan: Paid $700 on account for the advertising incurred back on January 8, decreasing the liabilities by $700. Accounts Payable $700 Cash $700 Useful Sources: - Financial Accounting: Tools for Business Decision Making, 8th Edition by Paul D. Kimmel, Jerry J. Weygandt, and Donald E. Kieso - Accounting Principles, 12th Edition by Jerry J. Weygandt, Paul D. Kimmel, and Donald E. Kieso - Introduction to Financial Accounting by Andrew Higson - Principles of Accounting by Larry Walther and Christopher Skousen - Journal Entry Definition and Explanation by Accounting Coach 2. Post transactions to the General Ledger. Response: The General Ledger is the primary record of all journal entries and activity for a specific account. It is where all debits and credits for each account are recorded and updated. In this case, we will post the transactions to the General Ledger for the specific accounts mentioned in the question. Cash: Date Description Debit Credit Balance 1-Jan Jack Strange, Capital $50,000 $50,000 20-Jan Unearned Admission Revenue $5,700 $44,300 22-Jan Unearned Admission Revenue $3,000 $41,300 25-Jan $2,500 $43,800 30-Jan $700 Question 3 Management accounting details in fund flow statement and cash flow statement Answer Management accounting details in fund flow statement and cash flow statement are both important tools used in financial reporting for businesses. While they may seem similar, there are significant differences between the two that are crucial to understand. The fund flow statement, also known as the statement of changes in financial position, focuses on the sources and uses of a company's funds during a specific period. It provides information on the inflow and outflow of funds, which are often categorized into operating, investing, and financing activities. This statement is beneficial for managers as it helps them analyze the financial performance of the company and make informed decisions. On the other hand, the cash flow statement focuses on the movement of cash and cash equivalents in and out of a company during a specific period. It shows the cash inflows and outflows from operating activities, investing activities, and financing activities. This statement is vital for managers as it helps them evaluate the company's liquidity and cash flow management. One of the main differences between the two statements is the timing of the information. The fund flow statement focuses on changes in financial position over a specific period, while the cash flow statement reflects the actual cash movement during that period. This means that while both statements provide valuable information, the fund flow statement is more focused on the long-term financial performance while the cash flow statement focuses more on the short-term cash flow management. Another difference between the two statements is the level of detail they provide. The fund flow statement provides a more detailed breakdown of the sources and uses of funds, making it beneficial for analyzing specific areas of a company's finances. On the other hand, the cash flow statement is more general and provides an overall picture of the company's cash flow. In conclusion, both the fund flow statement and cash flow statement play vital roles in management accounting. While they have some similarities, it is essential to understand their differences to utilize them effectively for financial analysis and decision making. Question 4 Show the Accounting equation for the following transactions of Rakesh Bihari Mittal: (i) Sold goods costing 30,000 for ₹ 50,000 to Shyam, (ii) Purchased household goods for 15,000 giving₹ 5,000 in cash and the balance through a loan. (iii) Received 49,500 from Shyam in full settlement of an account of 50,000. (iv) Paid Salary 500 and Salary still outstanding 100. (v) Paid Rent in advance 200. (vi) Withdrew goods for personal use (Cost 500, Sale Price 600). Answer The Accounting equation, also known as the balance sheet equation, is the foundation of doubleentry bookkeeping and is used to report a company's financial position. It represents the relationship between a company's assets, liabilities, and equity. The formula for the Accounting equation is: Assets = Liabilities + Equity. To properly demonstrate the Accounting equation for the transactions of Rakesh Bihari Mittal, we need to understand the impact of each transaction on the company's assets, liabilities, and equity. (i) Sold goods costing 30,000 for ₹ 50,000 to Shyam: This transaction increases the company's assets (cash or accounts receivable) by ₹ 50,000 and also increases its equity by the same amount. The entry would be: Debit: Cash/Accounts receivable ............................. ₹ 50,000 Credit: Sales ............................................................ ₹ 50,000 (ii) Purchased household goods for 15,000 giving₹ 5,000 in cash and the balance through a loan: This transaction decreases the company's assets (cash) by 5,000 and increases its liabilities (loan) by 10,000. The entry would be: Debit: Household goods .............................................. ₹ 15,000 Credit: Cash .............................................................. ₹ 5,000 Credit: Loan .............................................................. ₹ 10,000 (iii) Received 49,500 from Shyam in full settlement of an account of 50,000: This transaction increases the company's assets (cash or accounts receivable) by 49,500 and decreases its accounts receivable by the same amount. The entry would be: Debit: Cash .............................................................. ₹ 49,500 Credit: Accounts receivable .........................................₹ 49,500 (iv) Paid Salary 500 and Salary still outstanding 100: This transaction decreases the company's assets (cash) by 500 and increases its liabilities (salary payable) by 100. The entry would be: Debit: Salary expense .................................................. ₹ 500 Credit: Cash .............................................................. ₹ 500 Debit: Salary payable ................................................. ₹ 100 Credit: Cash .............................................................. ₹ 100 (v) Paid Rent in advance 200: This transaction decreases the company's assets (cash) by 200 and increases its liabilities (prepaid rent) by the same amount. The entry would be: Debit: Rent expense .................................................. ₹ 200 Credit: Cash .............................................................. ₹ 200 Debit: Prepaid rent ................................................... ₹ 200 Credit: Cash .............................................................. ₹ 200 (vi) Withdrew goods for personal use (Cost 500, Sale Price 600): This transaction decreases the company's assets (inventory) by 500 and its equity (retained earnings) by 600. The entry would be: Debit: Withdrawals (drawings) ................................... ₹ 600 Credit: Cost of goods sold ......................................... ₹ 500 Credit: Inventory ...................................................... ₹ 500 To summarize the impact of these transactions on the Accounting equation, we can now write it as follows: Assets = Liabilities + Equity (50,000 + 15,000 - 5,000 - 200) + (10,000 + 100) + (50,000 - 49,500 + 600) = 500 + 10,200 + 100,600 Therefore, the Accounting equation for Rakesh Bihari Mittal's transactions would be: Assets = 167,400 Liabilities = 10,700 Equity = 146,100 Question 5 Take me to the text Ryan Manufacturing sells flat-pack bookcases to retailers. The following transactions occurred during the month of November 2024. All sales on account come with terms of 4/10, net 30. Nov 3 Received a loan from the bank for $15,000. Nov 5 Sold products for cash to Brock Retailer for $8,100. The products had a cost of $4,455. Nov 8 Sold products on account to Furniture Outlet for $10,300. The products had a cost of $6,180. Nov 11 Furniture Outlet paid the amount owing from Nov 8. Nov 19 Sold products on account to Brock Retailer for $6,400. The products had a cost of $3,520. Required a) Record the above transactions in the sales journal and the cash receipts journal. b) Post the appropriate transactions from the journals to the subledger accounts. c) At the end of the month, total the journals and update the accounts receivable control account. Answer Ryan Manufacturing is a company that specializes in selling flat-pack bookcases to retailers. In the month of November 2024, the company had several transactions which need to be recorded and updated in the journals and subledger accounts. As a responsible college student with high marks, it is important to ensure that all transactions are accurately recorded and reflected in the company's financial statements. a) Record of Transactions in Sales Journal and Cash Receipts Journal: Sales Journal: Date | Account Debited | Invoice Number | Explanation | Sales | Cost of Goods Sold Nov 5 | Cash | - | Sold products to Brock Retailer | $8,100 | $4,455 Nov 8 | Accounts Receivable | - | Sold products to Furniture Outlet | $10,300 | $6,180 Nov 19 | Accounts Receivable | - | Sold products to Brock Retailer | $6,400 | $3,520 Cash Receipts Journal: Date | Account Credited | Invoice Number | Explanation | Sales | Cash Received Nov 11 | Accounts Receivable | - | Payment received from Furniture Outlet | $10,300 | $10,300 b) Posting of Transactions to Subledger Accounts: Accounts Receivable Subledger: Date | Invoice Number | Debit | Credit | Balance Nov 8 | - | $10,300 | - | $10,300 Nov 19 | - | $6,400 | - | $16,700 Nov 11 | - | - | $10,300 | $6,400 Cash Subledger: Date | Invoice Number | Debit | Credit | Balance Nov 5 | - | - | $8,100 | $8,100 Nov 11 | - | - | $10,300 | $0 c) Totaling Journals and updating the Accounts Receivable Control Account: Sales Journal total: $24,800 ($8,100 + $10,300 + $6,400) Cash Receipts Journal total: $10,300 Accounts Receivable Control Account update: Nov 8 - Debit: $10,300 Nov 19 - Debit: $6,400 Nov 11 - Credit: $10,300 Balance: $16,400 ($16,700 - $300)