mid-term- financial accounting for managers july 2010

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  • 8/9/2019 Mid-Term- Financial Accounting for Managers July 2010...

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    Question umber-3 Part- A Marks 2

    PRIDE FOREVER

    BALACE SHEET AS JUE 30, 2010----.

    Assets Liabilities and Owners EquityCash ............................... 12,000 Bank loan ............................. 40,000

    Inventory ....................... 95,000 Owners EquityOther assets ................... 13,000 Owners equity.................. 80,000

    Total assets ....................

    120,000

    Total liabilities and

    owners equity ......................

    120,000.The purpose of this problem is to test the equality of the basic accounting equation: assets equal liabilities

    plus owners equity.

    Problem -14 ( Part B) Marks 5 Zentech Company

    The missing numbers are:

    Year 1

    Noncurrent assets ........................................ Rs410,976Noncurrent liabilities ................................... 240,518

    Year 2

    Current assets .............................................. 90,442Total assets .................................................. 288,456

    Noncurrent liabilities ..................................( Answers can vary according to facultyannouncement in exam hall, benefit is to

    be given to the students)

    78,585

    Year 3

    Total assets .................................................. 247,135Current liabilities ......................................... 15,583Total liabilities and owners equity ............. 247,135

    Year 4

    Current assets .............................................. 69,090

    Current liabilities ......................................... 17,539

    The basic accounting equation is

    Assets = Liabilities + Owners equity

    Current assets + Noncurrent assets = Total assets

    Current liabilities + Noncurrent liabilities = Total liabilities

    Paid-in capital + Retained earnings = Owners equity.

    Faculty explanation: - The additional paid-in capital account is a special account to record the

    excess of capital received over par value in common share stock issuances. Simply use a

    descriptive term, like paid-in capital, to describe capital received from stockholders.

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    QUESTIO -15 (5 MARKS) STAPLE COMPAY

    BALACE SHEET, JUE 30, ----.

    Assets Liabilities

    Cash .................................................... Rs 89,000 Accounts payable ......................... 241,000

    Marketable securities .......................... 379,000 Taxes payable ............................... 125,000

    Accounts receivable ........................... 505,000 Accrued expenses ......................... 107,000Inventories 513,000 Current liabilities.......................... 473,000

    Current assets ................................ 1,486,000 Notes payable ............................... 200,000

    Land .................................................... 230,000 Bonds payable .............................. 700,000Buildings ............................................ 1,120,000 Total liabilities ............................. 1,373,000

    Accumulated depreciation .................. (538,000)

    Equipment .......................................... 761,000 Owners EquityAccumulated depreciation .................. (386,000) Capital share stock ....................... 1,000,000

    Investments......................................... 320,000 Retained earnings ....................... 620,000

    Total assets ....................................

    2,993,000

    Total liabilitiesand owners equity ..................

    2,993,000

    Some students may want to test the notes payable as a current liability. Notes payable are usually debt

    instruments longer than one year, but in the absence of any details listing them as a current liability isacceptable.

    Question: 16 CASE (Part C)

    ( Marks 13 )

    The explanation of these 11 transactions is:

    1. Owners invest Rs20,000 of equity capital in Acme Consulting.2. Equipment costing Rs7,000 is purchased for Rs5,000 cash and an account payable of Rs2,000.3. Supplies inventory costing Rs1,000 is bought for cash.4. Salaries of Rs4,500 are paid in cash.5. Revenues of Rs10,000 are earned, of which Rs5,000 has been recovered in cash. The remaining

    Rs5,000 is owed to the company by its customers.

    6. Accounts payables of Rs1,500 are paid in cash.7. Customers pay Rs1,000 of the Rs5,000 they owe the company.8. Rent Expense of Rs750 is paid in cash.9. Utilities of Rs500 are paid in cash.10.A Rs200 travel expense has been incurred but not yet paid.11.Supplies inventory costing Rs200 are consumed.

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    ACME COSULTIG

    BALACE SHEET AS OF June 30, ----.

    Assets Liabilities and Owners EquityCash ................................................ Rs12,75

    0Accounts payable ........................... Rs 700

    Accounts receivable ....................... 4,000Supplies inventory .......................... 800 ______

    Current assets ........................... 17,550 Current liabilities ........................... 700Equipment ...................................... 7,000 Owners equity ............................... 23,850

    Total assets .....................................

    24,550Total liabilitiesand owners equity .........................

    24,550

    ACME COSULTIG

    ICOME STATEMET June 1 - 30, ----.Revenues ........................................................... Rs10,000Expenses

    Salaries ......................................................... 4,500Rent .............................................................. 750

    Utilities ......................................................... 500Travel ........................................................... 200Supplies ........................................................ 200 6,150

    Net income .............................................. Rs 3,850

    ACME COSULTIG

    CASH RECEIPTS AD DISBURSEMETS, June 1 - 30, ----.

    ReceiptsOwners investment ...................................... Rs20,000Cash sales ..................................................... 5,000

    Collection of accounts receivable ................. 1,000Total receipts ........................................... Rs26,000

    DisbursementsEquipment purchase ..................................... Rs5,000Supplies purchase ......................................... 1,000

    Salaries paid ................................................. 4,500Payments to vendors ..................................... 1,500Rent paid ...................................................... 750

    Utilities paid ................................................. 500Total disbursements ................................. Rs13,250

    Increase in cash ....................................... Rs12,750

    The change in this cash account includes the owners investment, which is not an income statement item.The income statement includes revenues and expenses that have not yet been received in cash or paid incash. The cash paid to purchase the equipment is not reflected in the income statement.

    This problem explains several important points that managers should understand. These are:

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    a. Every transaction involves at least two accounts.b. Net income is not equivalent to the net change in the cash account during an accounting period.c. Cash is influenced by both balance sheet and income statement events.d. The basic accounting equation (Assets = Liabilities + Owners equity) can be used to capture,illustrate, and explain the accounting consequences of many (but not all) transactions and events that

    involve a company.

    The cash receipts - disbursements display is used since it would be premature to introduce the cash flow

    statement display at this point i.e. mid-term exam.