Reference no: EM132596362
Exercise 1
Silver Quest Inc. buys and sells silver powder. Its financial year runs from January 1 until December 31. The balance sheet onJanuary 1, 2019 is as follows:
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ASSETS
|
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LIABILITIES
|
|
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Buildings at cost
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4,000,000
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Long term debt
|
1,200,000
|
|
Accumulated depreciation
|
1,750,000
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Capital lease obligation
|
799,200
|
|
Bookvalue buildings
|
2,250,000
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Accounts payable
|
450,000
|
|
Capital lease equipment at cost
|
847,500
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Salariespayable
|
48,000
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Accumulateddepreciation
|
169,500
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Interest payable
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30,000
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|
Bookvalue lease equipment
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678,000
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Taxespayable
|
10,000
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Trucks at cost
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2,500.000
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EQUITY
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|
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Accumulateddepreciation
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1,075,000
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Common stock
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2,250,000
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Bookvalue trucks
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1,425,000
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Additional paid in capital
|
510,000
|
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Merchandiseinventory
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1,170,000
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Paid in capital treasury stock
|
3,000
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Accounts receivable
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900,000
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Retained earnings
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2,332,800
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Cash
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1,210,000
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|
|
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Total
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7,633,000
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Total
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7,633,000
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The following additional information is availablefor 2019.
Silver Quest Inc is a private limited corporation. The shares of a private company are limited transferable. When a shareholder want to sell the shares he has to offer his shares to another shareholder first. Mr Johnson owns 2,500 sharesand wants to sell his shares. Because no suitable shareholder could be found, Silver Quest buys the shares on March 1, 2019 and decides to retire these shares. The purchase price of these shares is € 200 per share. The original issue price of theseshares was € 120 per share. The par value of a share is € 100.
Silver Quest Inc pays a dividend on July 1, 2019. The amount of the dividend is 40% of common stock.
Silver Quest Inc uses the double declining balance method to depreciate on the capitalleaseequipment. The depreciation rate is 20%. The interest rate implied in the capital lease contract is 12% per year. The lease started at January 1, 2018.
Silver Quest repays the long termdebt on July 1 every year. On this date, Silver Quest also pays the interest. The interest of the long term debt is 5% per year.
One of buildings was sold in 2019. The selling price was € 720,000. The bookgain on this disposal was € 30,000. The original purchase price of the building was € 1,200,000.
All sales and purchases are on account.
The income tax rate is 25%. The tax base is profit before taxes.
The table below gives an overview of all receipts and expenditures of 2019.
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RECEIPTS
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EXPENDITURES
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|
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Payments from customers
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5,200,000
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Paymentstosuppliers
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4,280,000
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|
Disposal of building
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720,000
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Salaries paid
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800,000
|
|
|
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Lease term paid
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'150,000
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|
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Interest paid on long term debt
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..........
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|
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Repayment of long term debt
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150,000
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|
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Dividendspaid
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..........
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|
|
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Purchase and retirement own shares
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500,000
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|
|
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Incometaxpaid
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35,000
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At the end of the period the following balance sheet items are given:
Capital lease equipment at cost € 847,500
Trucks at cost € 2,500,000
Accumulated depreciation trucks € 1,300,000
Merchandise inventory € 1,560,000
Accounts receivables € 1,100,000
Accounts payable € 380,000
Salaries payable € 64,000
Paid in capital Treasury Stock € 3,000
Question A
Complete the table with receipts and expenditures.
Question B
Calculate salesof silver powder in 2019.
Question C1
Calculate purchases of silver powder in 2019.
Question C2
Calculate cost of goods sold of silver powder in 2019.
Question D
Prepare the journal entry regarding the purchase and retirement of the own shares on March 1, 2019.
Account name Debit Credit
Question E
Complete theincome statement of 2019. Please show your calculations explicitly.
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EXPENSES
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REVENUES
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|
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Cost of goods sold (question C2)
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...........
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Sales (question B)
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...........
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Depreciation expense building
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110,000
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Gain on disposal of building
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30,000
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|
Depreciation expense equipment
|
...........
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|
|
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Depreciation expense trucks
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...........
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|
|
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Salariesexpense
|
...........
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|
|
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Interest expense long term debt
|
...........
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|
|
|
Interest expense lease obligation
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...........
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|
|
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<Profit beforetax>
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...........
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|
|
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Incometaxexpense
|
...........
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|
|
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<Net income>
|
...........
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|
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Calculations:
Question F
Complete thebalance sheet on December 31, 2019. Please show your calculations explicitly.
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ASSETS
|
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LIABILITIES
|
|
|
Buildings at cost
|
...........
|
Long term debt
|
..........
|
|
Accumulated depreciation
|
...........
|
Capital lease obligation
|
..........
|
|
Bookvalue buildings
|
..........
|
Accounts payable
|
380,000
|
|
Capital lease equipment at cost
|
847,500
|
Salariespayable
|
64,000
|
|
Accumulateddepreciation
|
...........
|
Interest payable
|
..........
|
|
Bookvalue lease equipment
|
...........
|
Taxespayable
|
..........
|
|
Trucks at cost
|
2,500,000
|
EQUITY
|
|
|
Accumulateddepreciation
|
1,300,000
|
Common stock
|
..........
|
|
Bookvalue trucks
|
1,200,000
|
Additional paid in capital
|
..........
|
|
Merchandiseinventory
|
1,560,000
|
Paid in capital treasury stock
|
3,000
|
|
Accounts receivable
|
1,100,000
|
Retained earnings
|
..........
|
|
Cash
|
...........
|
|
|
|
Total
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|
Total
|
|
Exercise 2:
Question A
Compute the depreciation expense on equipment for the year ended on June 30, 2019.
Question B
Prepare Babbel's statement of cash flows for the year ended June 30, 2019, using the indirect method Make a reconciliation with the change in cash.
Question C
Compute Cash flow to sales ratio. Shortly provide your interpretation of this ratio for Babbel Corporation.
Question D
Discuss why depreciation is deducted on the Income statement and added back to Cash flows?
Question E
Discuss why the change in Retained Earnings as part of stockholders' equity is not separately included in the cash flow from financing activities?
Attachment:- exam financial accounting.rar