Accounting Skills

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Accounting Skills

Answer all the questions, each question carries 20 marks.

Question. 1. What is accounting? Discuss its Advantages and Disadvantages in a detailed manner?

Answer: Accounting is the systematic and comprehensive recording of financial transactions pertaining to a business, and it also refers to the process of summarizing, analyzing and reporting these transactions to oversight agencies and tax collection entities. Accounting is one of the key functions of almost any business; it may handle by a bookkeeper and accountant at small firms or by sizable finance departments with dozens of employees at large companies.

Question. 2. Yankee Hotel Foxtrot initiated operations on July 1, 2014. To manage the company officers and managers have requested monthly financial statements starting July 31, 2014. The adjusted trial balance amounts at July 31 are shown below.

	Debits		Credits
Cash	$ 7,680	Accumulated Depreciation-
		Equipment	$ 840
Accounts Receivable	810	Notes Payable	6,000
Prepaid Rent	1,965	Accounts Payable	2,140
Supplies	1,160	Salaries and Wages Payable	360
Equipment	11,400	Interest Payable	40
Owner's Drawings	800	Unearned Service Revenue	580
Salaries and Wages Expense	7,145	Owner's Capital	10,640
Rent Expense	2,740	Service Revenue	14,390
Depreciation Expense	665
Supplies Expense	580
Interest Expense	45
Total debits	$ 34990	Total Credits	$34990

Instructions

(A) Determine the net income for the month of July

(B) Determine the amount for Owner’s, Capital at July 31, 2014

(C) Determine the Balance Sheet at July 31, 2014 for

 

Answer:

(

Question. 3. Polk Company developed the following information for its product:

	Per unit
Sales price	$90
Variable cost	63
Contribution margin	$27
Total fixed costs	$1,080,000

Instructions

Answer the following independent questions and show computations using the contribution margin technique to support your answers.

Question. 4. Rodie Company has budgeted sales revenues as follows:

Particulars	June	July	August
Credit sales	$135,000	$145,000	$  90,000
Cash sales	90,000	255,000	195,000
Total sales	$225,000	$400,000	$285,000

Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month. Purchases of inventory are all on credit and 50% is paid in the month of purchase and 50% in the month following purchase. Budgeted inventory purchases are:

June	$300,000
July	250,000
August	105,000

Other cash disbursements budgeted:  (a) selling and administrative expenses of $48,000 each month, (b) dividends of $103,000 will be paid in July, and (c) purchase of equipment in August for $30,000 cash.

The company wishes to maintain a minimum cash balance of $50,000 at the end of each month. The company borrows money from the bank at 8% interest if necessary to maintain the minimum cash balance. Borrowed money is repaid in months when there is an excess cash balance. The beginning cash balance on July 1 was $50,000. Assume that borrowed money in this case is for one month.

Instructions

Prepare a cash budget for the months of July and August. Prepare separate schedules for expected collections from customers and expected payments for purchases of inventory.

Answer: Cash Budget

RODIE COMPANY

For the two months of July and August

	July	August
Beginning cash balance	$ 50,000	$ 50,000
Add: Receipts
Collections from customers	141,000	112,000

Question. 5. Using the financial statements for the Snider Corporation, calculate the 13 basic ratios found in the chapter.

SNIDER CORPORATION

Balance Sheet

December 31, 2013

Assets
Current assets:
Cash	$ 52,200
Marketable securities	24,400
Accounts receivable (net)	222,000
Inventory	238,000
Total current assets	$536,000
Investments	65,900
Plant and equipment	615,000
Less: Accumulated depreciation	(271,000)
Net plant and equipment	344,000
Total assets	$946,500
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$93,400
Notes payable	70,600
Accrued taxes	17,000
Total current liabilities	181,000
Long-term liabilities:
Bonds payable	153,200
Total liabilities	$334,200
Stockholders’ equity
Preferred stock, $50 per value	100,000
Common stock, $1 par value	80,000
Capital paid in excess of par	190,000
Retained earnings	242,300
Total stockholders’ equity	612,300
Total liabilities and stockholders’ equity	$946,500

SNIDER CORPORATION

Income statement

For the Year Ending December 31, 2013

Sales (on credit)	$2,064,000
Less: Cost of goods sold	1,313,000
Gross profit	751,000
Less: Selling and administrative expenses	496,000*
Operating profit (EBIT)	255,000
Less: Interest expense	26,900
Earnings before taxes (EBT)	228,100
Less: Taxes	83,300
Earnings after taxes (EAT)	$   144,800

*Includes $36,100 in lease payments.

Answer: Profitability ratios

	Profitability	Ratios
Profit margin	7.02%	%
Return on assets (investment)	15.3%	%
Return on equity	23.65%	%

Explanation:

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