ahm12e _ chapter 03 _ key to eoc problems

7/27/2019 AHM12e _ Chapter 03 _ Key to EOC Problems

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Problem 3 - 1

a) Expense can't be incurred until goods were delivered. Hence $25,000 will be expense for July

b) Expense was incurred in June as the payment was for the work performed in that month.

c) Expense for June. The money was spent for purchasing these goods and were no use now. H

d) Expense for June as the sale of goods has taken place in June itself.

e) It will be expense for June if the radio advertising has taken place in this accounting period (vi

f) Not an expense for June. Only the assets were acquired. They are yet to go through the manu

Problem 3 - 2

a) Sales 275,000


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Profit before tax 15,000Less: corporate tax expense 6,000

Net income (PAT) 9,000

a2) Gross margin (Gross profit margin) = Gross profit / Sales = 47.06%

a3) Profit margin (net profit margin) = net profit / sales = 10.59%

b) Some interpretations:marginal tax rate is 40%operating profits (the earnings potential) is 17.7% of its sales.Company's gross margin is 47% of its sales.It could contain its operating expenses at 29.3% of its sales.

Problem 3 - 5

a) It is an expenditure of $40,000. It will be expensed over next 5 years. The depreciation expen

b) No change in income statement as land is not depreciated.

c) Inventory consumed upto December 31 only will be shown in this year's income statement. H

d) The accounting year is same as calender year in this case. The $72 expenditure spans over t

Problem 3 - 6

shown on the

balance sheetPrepaid insurance dated Fire insura

30,000 october 31, 2011 (say)27,500 December 31, 2011 2,50012,500 December 31, 2012 15,000

0 October 31, 2013 12,500

Problem 3 - 7

QED Electronics ComTransactional analysis

Provision

Accounts for partsTr. No. Date Descrption Cash ReceivableBad debt Inventory

Opening balances1) paid for repair truck -190002) paid for parts bought -1600 1600

consumed the parts -16003) Revenue in cash 20500

Credit sales 12900Provision for bad debt -645

Assets


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4) Interest expense5) wages paid in cash -8600

wages not paid

6) depletion in parts inv -21007) utilities bills paid -15008) Depreciation expense

9) selling expenses paid -190010) provision for income tax

Tax paid in this month -260011) Admin & misc. exp

-14700 12900 -645 -2100

Problem 3 - 8

XYZ CompanyBalance sheet as on _______

Assets Liabilities and OE

Current assets $80,000 Current liabilities $50,000Non-current assets (Bal. Fig.) $138,182 Long-term liabilities $40,000

Owners' equity $128,182$218,182 $218,182

XYZ Company


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Income Statement for the period ending _______

Saeles revenue $81,818

Less: Cost of goods sold $45,000Gross Profit $36,818 45%

Less: operating expenses xxx

interest expenses xxxcorporate tax expense xxx

$28,636


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, not for June.

ence this amount has to be expensed in the month it were found to be obsolete.

. June).

facturing process and to be sold in order to be recognized as expense.


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e will be charged to income.

nce, $3,500 will be charged to income as cost of goods sold for this year. The remaining $3500 will be

o accounting years. Hence the subscription expense for this will be $36 and the balance $36 will be sh

shown on the

income statement for thece expense calender year ending

201120122013

any

Accumulated Admin &Depreciation misc.

Repair on repair Interest wages utilities bill income tax expensesTruck truck accrued payable payable payable payable

70019000

Liabilities


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880

1,400

-700-2700

2800-2600

4,70019000 -2700 880 1400 0 200 4700

QED Electronics Company

Income Statement for April, 20xx

Revenues: 33400Cash sales 20500

Credit sales 12900Less: Cost of goods sold -3700

Gross profit 29700Less: Expenses

Selling expenses -1900Admin & misc. expenses -4,700Wages expense -10,000

Utilities expenses -800provided for bad debts -645Depreciation expense -2700

Operating expenses -20745Operating profit 8955Less: interest expense -880

Profit before tax 8075Less: corporate tax expense -2800Net income (Profit after tax) 5275

Current liabilities, EoY $50,000 Current ratio =Owners' equity, BoY $120,000Long-term debt, EoY $40,000

Inventory, BoY $35,000 Gross margin =Purchases during the year $40,000 Net profit margin =Inventory, EoY $30,000==> cost of goods sold = $45,000

==> sales = $81,818

==> Net profit = $8,182


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500,000) but in terms of the purchasing power of its cash it was worse off (LC 1,000,000 versus LC 60


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harged to next year's income.

wn as prepaid expense on the ending balance sheet of this accounting year. It will be expensed next y

Revenues,Expenses

-16002050012900

-645


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-880-8600

-1,400

-2100-800

-2700

-1900-2800

-4,7005275

1.6

45%10%


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0,000).


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ar.

ahm12e _ chapter 03 _ key to eoc problems

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