Reference no: EM132227044

Scenario

You have applied for a job in the accounting department of a department store.

Task 1 of 2 - Q&A

Instructions

As part of the application form, you are to answer the following questions:
1. Explain the aims and purpose of financial and management accounting to business.
2. Who are the various users of accounting information and what information would these users require?
3. Describe the role of the International Accounting Standards Board (IASB) and the Standards Advisory Council (SAC)

Task 2 of 2 - Accounting Test
After successfully being called in for an interview. You have been asked a problem to solve to test your ability in basic accounting.

Problem 1
Jack Uzi, wholesale toys online and because he operates out of his office in his parents' apartment, he operates with 0 inventory. Every toy he sells is first purchased then re-sold, but only after the order comes through. You need to help him out with his bookkeeping. The following transactions occurred in October:

a. Paid £500 for lease of computer equipment in advance for November
b. Cash Sales of £4,847. (for stuffed animal)
c. Cash sales of £4,486 (for Educational Toys)
d. Cash sales of £4,702 (for Video Games)
e. Cash Sales of £1,827 (for Pretend-play toys)
f. Purchase of office supplies on account from Bing's Office Supply, £416.
g. Withdrawal by owner (Jack Uzi) of £1,600.
h. Payment on account (Bing's), £390.
i. Payment of wages with cash, £2,500.
j. Payment for cleaning services with cash, £74
k. Payment to purchase stuffed animal, £4,044
l. Payment to purchase Educational Toys, £3,547
m. Payment to purchase Video Games, £4,169
n. Payment to purchase Pretend-play toys, £1,382

Further, he has account balances for the beginning of October as follows:

Cash	£ 2,000	Accounts Payable, Bing's Office Supply Hut	£ 75
Office Supplies	£ 75	Jack Uzi, Capital	£ 2000

Instructions

1. Prepare books of original entries (Sales journal, purchase journal, cash journal)
2. Prepare the general ledger
3. Jack checked his bank balance and he noticed that his actual cash balance was £20 less due to overdraft fees, make the necessary adjustments
4. Prepare a trial balance for October 31, 201 6
5. Prepare a cash Flow Statement for October 31, 201 6
6. Prepare an Income Statement for the period ending October 31, 201 6
7. Prepare a Balance Sheet for October 31, 201 6

Problem 2 -

WoodyTrain has the following income statement (turn page)

WoodyTrain	Income Statement 201 6
INCOME
Sales	£	37,763.00
Cost of Goods
Beginning Inventory value	£	8,010.00
Manufacturing cost	£	19,159.00
Less Ending Inventory value	£	8,793.00
Cost of Goods Sold	£	18,376.00
Gross Profit	£	19,387.00
Non -Operating Income
Interest Income	£	600.00
Total Non -Operating Income	£	600.00
Total INCOME	£ 13,997.00
EXPENSES
Operating Expenses
Accounting and Legal	£	1,107.00
Advertising	£	900.00
Depreciation	£	1,202.00
Insurance	£	1,041.00
Maintenance and Repairs	£	923.00
Office Supplies	£	325.00
Rent	£	1,268.00

Salaries and Wages	£		925.00
Telephone & Broadband	£		118.00
Utilities	£		565.00
Web Hosting and Domains	£		165.00
Total Operating Expenses	£		8,539.00
Non -Recurring Expenses
Furniture and Equipment	£		1,052.00
Total Non -Recurring Expenses	£		1,052.00
Total EXPENSES		£	9,591.00
Net Income Before Taxes	£		4,075.00
Income Tax Expense	£		815.00
NET INCOME	£3,260.00

WoodyTrain
Statement of financial position at 31 Dec 201 6
Assets

Current
Cash		£ 1,704.00
Inventory		£ 8,793.00		£ 10,497.00
Non-current assets
	Office Supplies	£	120.00
	Office Equipment	£	3,785.00
	Less: Accumulated depreciation	£	1,202.00	£    2,703.00
				£ 13,200.00
Equity	Owner Capital			£    6,000.00
	Profits/loss			£    3,260.00

Liabilities

Current

Liabilities    Short-term loan

Non- Current Liabilities

                                                                                              £    1,940.00

Long-term loans                                                                         £    2,000.00

Total Liabilities + Equity                                                              £ 13,200.00

Instructions

1. Using the usual ratio categories (Liquidity ratios, Solvency ratios and Profitability ratios), classify the following ratios
• Current Ratio
• Acid-Test Ratio
• Debt-Equity Ratio
• Profit Margin
• Return on Owners' Equity

2. Calculate the following ratios
• Debt-Equity Ratio
• Profit Margin
• Return on Owners' Equity

3. Based on the information provided and your ratio, how would you describe the financial performances of WoodyTrain?