Reference no: EM132353969
QUESTION 1
Ken Kennett Building Services is a local business operating in the housing industry. Ken Kennett has no formal accounting system and does not use financial statements for decision making. However, he is negotiating a contract with a supplier of building materials who wants to see his financial statements to ensure that Ken can meet his payments each month. Ken has asked you to prepare financial statements. Based on his last tax return and the content of his shoebox (where he keeps his invoices and receipts) for this year, you have recorded the following items:
Cash in the shoebox (with the receipts and invoices) $500
Cash in the bank account 3,800
Building services provided 550,000
Amounts owed by customers 80,000
Wages paid to employees 150,000
Wages owed to the employees 3,500
Equipment 68,000
Building supplies used 310,000
Building supplies on hand 18,000
Amounts owed to suppliers 30,000
Motor vehicle 32,000
Motor vehicle expenses 5,600
Electricity and telephone expenses 4,000
Cash used by Ken for personal expenditure 5,700
REQUIRED:
A. Using the information above, prepare a statement of financial performance (income statement) and a statement of financial position (balance sheet) forKen Kennett Building Services.
B. How would the financial statements you provide help the supplier of building materials decide whether or not to trade with Ken? What parts of the financial statements would be positive indicators that Ken Kennett Building Services would be able to pay for supplies on time and what items may cause some concern for the suppliers?
QUESTION 2
Clive Calmer offers accounting services to the local small business owners! He has set up a sole proprietorship business named CC Accounting. Clive has collected the following information relating to his business activities at the end of financial year:
Office supplies $1,500
Office supplies expense 840
Telephone expense 255
Motor vehicle expense 330
Accounts receivable 1,500
Bank loan 7,500
Accounts payable 1,080
Cash at bank 8,445
Computer equipment 8,250
Advertising expense 510
Accounting service income 9,750
The following information was also disclosed from examining Clive's bank statement:
Accounting service income receipts $8,250
Initial contribution by Clive 3,300
Bank loan received 9,000
Payments to suppliers 2,355
Repayment of loan 1,500
Computer equipment purchase 8,250
REQUIRED:
A. Without preparing formal financial statements, calculate the following:
1. Profit/loss for the year
2. Total assets at the end of the year
3. Total liabilities at the end of the year
4. Clive Calmer's capital balance at the end of the year
5. Net cash inflow/outflow for the year
B. If Clive had withdrawn $3,000 in cash during the year, what effect would this have (increase, decrease, no effect) on the figures you calculated in requirement A?