accounting assignment final

7/18/2019 Accounting Assignment Final

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Superstar IceRinks Inc.

Financial

Statement As of June 30, 2017

Sudin Garai and Eghie Akhigbe



Part 1-4:

SIR’s Journal Entries (Pre-Adjusting)

These steps are to record Superstar Ice Rink’s transactional, adjustments and closing journal and ledger

entries.

Preparing Journal Entries

Debit Credit

1

Property and Equipment (asset+) 4,750,000

Cash (asset-) 1,622,000

Long Term Debt (liability+) 1,875,000

Common Shares (shareholder's equity+) 1,253,000

To record SIR's purchase of arena for $4,750,000

Debit Credit

2

Cash (asset+) 6,920,000

Accounts Receivable (asset+) 625,000

Sales (Renting Ice) (shareholder's equity+) 5,820,000

Sales (shop & Restaurant) (shareholder's equity+) 1,725,000

Cash (asset+) 614,000

Accounts Receivable (asset-) 614,000

To record SIR's earnings from Sales

Debit Credit

3

Cash (asset+) 1,310,000

Unearned Revenue (liability+) 1,310,000

To record money deposited to SIR for future use

Debit Credit

4

Wages Payable 21,250

Cash (asset-) 1,062,000

Wages Expense (expense+, shareholder's equity-) 1,076,000

Wages Payable (liability+) 35,250

To record Wages related transactions

Debit Credit

5Current Portion of Long Term Debt (liability-) 937,500

Cash (asset-) 937,500

To record pay of Long term Debt



Debit Credit

6


Interest Payable (liability-) 31,250

Interest Expense (expense+, shareholder's equity-) 531,750

To record Interest related expenses


Debit Credit

7

Inventory (asset+) 756,000

Accounts Payable (liability+) 756,000

Accounts Payable (liability-) 750,000


To record SIR's purchase of inventory

Debit Credit

8 Goods & Services (expense+, shareholder's equity-) 1,969,000

Accounts Payable (liability+) 1,969,000

Accounts Payable (liability-) 1,938,000

Cash (asset-) 1,938,000

To record SIR's purchase of goods and services

Debit Credit

9 Additional Expenses (expense+, shareholder's equity-) 375,000

Cash (asset-) 375,000To record SIR's additional expenses

Debit Credit

10 Tax Payable (liability-) 115,000


Tax Expense (expense+, shareholder's equity-) 64,000

To record SIR's Tax expenses

Debit Credit

11 Goods & Services (expense+, shareholder's equity-) 26,000

Sales (shareholder's equity+) 26,000

To record SIR's services taken against renting their ice



SIR’s Ledger Entries or T-Account (Pre-Adjusting)

ASSETS

Cash Accounts Receivable Inventory

Bal 1,987,500 Bal 62,500 Bal 210,000

1 1,622,000 2 625,000 7 756,000

2 6,920,000 2 614,000

2 614,000

3 1,310,000

4 1,062,000

5 937,500

6 563,000

Property, Plant,

Equipment

Accumulated

Depreciation

7 750,000 Bal 18,750,000 Bal 4,875,000

8 1,938,000 1 4,750,000

9 375,000

10 179,000

LIABILITIES

Bank Loan Accounts Payable Wages PayableBal 225,000 Bal 181,250 Bal 21,250

7 756,000 4 21,250

7 750,000 4 35,250

8 1,969,000

8 1,938,000

Taxes Payable Interest Payable Unearned RevenueBal 115,000 Bal 31,250 Bal 1,218,750

10 115,000 6 31,250 3 1,310,000



Current portion of LTD LTD (Long Term Debt)

Bal 937,500 Bal 7,326,250

5 937,500 1 1,875,000

OWNER'S EQUITY

Common Shares Retained Earnings Sales

Bal 4,706,250 Bal 1,372,500 Bal

1 1,253,000 2 5,820,000

2 1,725,00011 26,000

Cost of Sales Wages Expense Depreciation Expense

Bal Bal Bal

4 1,076,000

Tax Expense Interest Expense Additional Expense

Bal Bal Bal

10 64,000 6 531,750 9 375,000

Goods & Service

Bal8 1,969,000

11 26,000



SIR’s Journal Entries (Adjusting)

Preparing Adjusting Journal Entries

Debit Credit

12 Long Term Debt (liability-) 1,125,000Current Portion of Long Term Debt (liability+) 1,125,000

Adjusting the Current Portion of Long Term Debt

Debit Credit

13Cost of Sales (expense+, shareholder's equity-) 765,000

Inventory (asset-) 765,000

Adjusting cost of goods sold

Debit Credit

14Tax Expense (expense+, shareholder's equity-) 42,000

Taxes Payable (liability+) 42,000

Adjusting the taxes payable

Debit Credit

15Depreciation Expense (expense+, shareholder's equity-) 1,563,000

Accumulated Depreciation (asset-) 1,563,000

Adjusting the depreciation



SIR’s Ledger Entries or T-Account (Post-Adjusting)

ASSETS


Bal 1,987,500 Bal 62,500 Bal 210,000

1 1,622,000 2 625,000 7 756,000

2 6,920,000 2 614,000 13 765,000

2 614,000

3 1,310,000 Bal 73,500 Bal 201,000

4 1,062,000

5 937,500

6 563,000 Property, Plant, Equipment

Accumulated

Depreciation

7 750,000 Bal 18,750,000 Bal 4875000

8 1,938,000 1 4,750,000 15 1,563,0009 375,000

10 179,000

Bal 3,405,000 Bal 23,500,000 Bal 6,438,000

LIABILITIES

Bank loan Accounts Payable Wages payableBal 225,000 Bal 181,250 Bal 21,250

7 756,000 4 21,250

7 750,000 4 35,250

8 1,969,000

8 1,938,000

Bal 225,000 Bal 218,250 Bal 35,250

Taxes payable Interest payable Unearned revenueBal 115000 Bal 31,250 Bal 1,218,750

10 115,000 6 31,250 3 1,310,000

14 42,000

Bal 42,000 Bal 0 Bal 2,528,750




Bal 937,500 Bal 7,326,250

5 937,500 1 1,875,000

12 1,125,000 12 1,125,000

Bal 1,125,000 Bal 8,076,250

OWNER'S EQUITY

COMMON SHARES Retained Earnings Sales

Bal 4,706,250 Bal 1,372,500 Bal

1 1,253,000 2 5,820,000

2 1,725,000

11 26,000

Bal 5,959,250 Bal 1,372,500 Bal 7,571,000


Bal Bal Bal

13 765,000 4 1,076,000 15 1,563,000

Bal 765,000 Bal 1,076,000 Bal 1,563,000


Bal Bal Bal

10 64,000 6 531,750 9 375,000

14 42,000

Bal 106,000 Bal 531,750 Bal 375,000

Goods & Service

Bal

8 1,969,000

11 26,000

Bal 1,995,000



SIR’s Trial Balance

Debits Credits

Cash 3,405,000

Accounts Receivable 73,500Inventory 201,000

Property, Plant and Equipment 23,500,000

Accumulated Depreciation 6,438,000

Bank Loan 225,000

Accounts Payable 218,250


Taxes Payable 42,000

Interest Payable 0

Unearned Revenue 2,528,750

Current Portion of Long TermDebt 1,125,000

Long Term Debt 8,076,250

Common Shares 5,959,250

Retained Earnings 1,372,500

Sales 7,571,000

Cost of Sales 765,000

Wages Expense 1,076,000

Depreciation Expense 1,563,000

Tax Expense 106,000

Interest Expense 531,750

Additional Expense 375,000

Goods & Service 1,995,000

33,591,250 33,591,250

Balance

Sheet

Accounts

Income

Statement

Accounts



SIR’s Ledger Entries or T-Account (Post-Closing)

ASSETS


Bal 1,987,500 Bal 62,500 Bal 210,000

1 1,622,000 2 625,000 7 756,000

2 6,920,000 2 614,000 13 765,000

2 614,000

3 1,310,000 Bal 73,500 Bal 201,000

4 1,062,000

5 937,500

6 563,000 Property, Plant, Eqipment

Accumulated

Depreciation

7 750,000 Bal 18,750,000 Bal 4875000

8 1,938,000 1 4,750,000 15 1,563,000

9 375,000

10 179,000

Bal 3,405,000 Bal 23,500,000 Bal 6,438,000

LIABILITIES

Bank loan Accounts payable Wages payable

Bal 225,000 Bal 181,250 Bal 21,250

7 756,000 4 21,250

7 750,000 4 35,250

8 1,969,000

8 1,938,000

Bal 225,000 Bal 218,250 Bal 35,250

Taxes payable Interest payable Unearned revenue

Bal 115000 Bal 31,250 Bal 1,218,750

10 115,000 6 31,250 3 1,310,000

14 42,000

Bal 42,000 Bal 0 Bal 2,528,750




Bal 937,500 Bal 7,326,250

5 937,500 1 1,875,000

12 1,125,000 12 1,125,000

Bal 1,125,000 Bal 8,076,250

OWNER'S EQUITY

COMMON SHARES Retained Earnings Sales

Bal 4,706,250 Bal 1,372,500 Bal

1 1,253,000 2 5,820,000

2 1,725,000

11 26,000

Bal 5,959,250 Bal 1,372,500 Bal 7,571,000

7,571,000

Bal 0


Bal Bal Bal

13 765,000 4 1,076,000 15 1,563,000

Bal 765,000 Bal 1,076,000 Bal 1,563,000

765,000 1,076,000 1,563,000

Bal 0 Bal 0 Bal 0


Bal Bal Bal10 64,000 6 531,750 9 375,000

14 42,000

Bal 106,000 Bal 531,750 Bal 375,000

106,000 531,750 375,000

Bal 0 Bal 0 Bal 0



SIR’s Journal Entries (Post-Closing)


Debit Credit

16

Sales 7,571,000

Cost of Sales 765,000



Tax Expense 106,000



Goods & Services 1,995,000


Goods & Service

Bal

8 1,969,000

11 26,000

Bal 1,995,000 1,995,000

Bal 0



SIR’s Post-Closing Trial Balance

Debits Credits

Cash 3,405,000

Accounts Receivable 73,500Inventory 201000

Property, Plant and Equipment 23,500,000

Accumulated Depreciation 6,438,000

Bank Loan 225,000

Accounts Payable 218,250



Interest Payable 0

Unearned Revenue 2,528,750

Current Portion of Long TermDebt 1,125,000




Sales 0

Cost of Sales 0

Wages Expense 0

Depreciation Expense 0

Tax Expense 0

Interest Expense 0

Additional Expense 0

Goods & Service 0

27,179,500 27,179,500

Balance

Sheet

Accounts

Income

Statement

Accounts



SIR’s Balance Sheet

Superstar Ice Rinks Inc.

Balance Sheet

As of June 30, 2017

Assets Liability

Cash 3,405,000 Bank Loan 225,000

Accounts Receivable 73,500 Accounts Payable 218,250

Inventory 201,000 Wages Payable 35,250


Property, Plant and Equipment 23,500,000 Interest Payable 0

Accumulated Depreciation (6,438,000) Unearned Revenue 2,528,750

Current Portion of Long Term Debt 1,125,000




20,741,500 20,741,500

Superstar Ice Rinks Inc.

Income Statement and Statement of Retained Earnings

For Year Ended June 30, 2017

Sales 7,571,000

Cost of Sales 765,000Gross Margin 6,806,000

Expenses





Goods & Services 1,995,000

Total Expenses 5,540,750

Income before Taxes 1,265,250

Tax Expense 106,000Net Income 1,159,250

Retained Earnings at the beginning of the year: 1,372,500

Retained Earnings at the end of the year: 2,531,750



Part 5:

The question says 'comment on the company's cash position and its use of cash'

Answer: The company is in a better shape cash wise, as reflected in its cash position in 2017, which

increased over what it was in 2016.( $3,405,000 in 2017 vs N1,987,500), this shows that the company is

generating as lot of cash and as such will be able to meet up with its short and long term obligationwhen they fall due(assuming the trend continues), this cash position has been enhanced by the fact that

expansion of its operations are not always funded by cash as evidenced in the purchase of an existing

property they made in the course of the year, that acquisition was funded through various sources

namely: long term loans, shares and partly cash. Over the last year the company has also reduced its

cash purchases as evidenced by growing account payable balances, as it enjoys favorable credit terms

with its suppliers, because they do not have to always pay cash for their purchases, they can afford to

hold higher cash balances in their books.

Overall, the company is a growing company that is using cash generated from its operations and cash

from borrowing/or sale of equity to expand.

Part 6:

From looking at the company's financials, it is safe to say that the company is young and growing

company with huge income potentials. Its liquidity position is healthy as current ratio is at 12.1,

indicating that it has enough current assets to meet up with its maturing obligations as/when they fall

due. Taking that ratio further and trying to see how liquid it will be if all other current assets are

removed, shows no marked difference in quick ratio, as the company does not hold a lot of stock, and its

account receivables are also within manageable limits, its cash position alone can still conveniently

cover all its imminent obligations as at/when they fall due. The company seems to be doing well with its

suppliers as evidenced by an increase in account payable over last year. This tells us is that its suppliers

are offering the company favorable credit terms as against cash payment. Their operations is also been

enhanced by customers who are making advanced payments for services yet to be enjoyed, whichenhances their liquidity position as the company enjoys spontaneous financing (meaning they use their

customers fund to trade as against using their own funds).

Our major concern is the fact that its long term debt is bit high (N8.09M), which is like 45% of the total

value of the balance sheet, although the comfort we have is that it was used to purchase equipment

that is being used for the expansion of the business, and also this trend is normal for a growing business

looking to expand. If it continues along this path, we are confident it will pay down its loans, and

continue to grow profit.

Overall, the company is profitable, as reflected by an increase in earnings from N1,372,500 in 2016 to

N2,531,750 in 2017. As an investor that gives us confidence that this company will be in business in theforeseeable future.

accounting assignment final

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