Now that both the Absorption and Marginal Costing Income Statements have been completed the reconciliation between the Net Incomes calculated under each method can be done. I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to comment below. Best of luck!
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Telcom's Manufacturing Inc. 2b (i) Calculation of total cost of L23 and L24 using the traditional costing system:
Under the traditional costing system:
Note 2: Depreciation on Equipment: 10% x $170,240 = $17,024 per year. This is the depreciation charge for the Statement of Comprehensive Income. Accumulated depreciation charged on Equipment as at December 31st 2012 - [$32,200 + $17,024] = $49,224. This figure will be recorded on the Statement of Financial Position. Note 3: Insurance to be recorded on the Statement of Comprehensive Income = $1,320. Prepaid insurance to be recorded on the Statement of Financial Position = [$2,590 - $1,320] = $1,270. Note 4: The amount of $50,000 is now a ‘bad debt to be written off’ therefore: Double entry: Debit Bad Debt Expense Account $50,000 Credit Accounts Receivables Account $50,000 Note 5:
The new provision for doubtful debt balance = 2% x [$300,050 - $50,000] = $5,001. Therefore the current provision needs to be increased by $519, [that is $5,001-$ $4,482]. This increase of $519 will be recorded as an expense on the Statement of Comprehensive Income. The new provision balance of $5,001 will be netted off against the accounts receivable figure in the Statement of Financial Position. 1. Calculation of income tax paid during 2007-2008. Alternatively a ledger account can be prepared to calculate the amount of income tax that was paid during the year:
Note 2: The bank loan will be recorded as follows: $6,250 will be recorded under the Current Liabilities section of the Statement of Financial Position as this portion is due to be paid in less than 1 year. The balance $25,000, ($31,250-$6,250) will be recorded under the Non Current Liabilities section of the Statement of Financial Position as this portion is not due to be paid in less than 1 year. Note 3: Dividends due on investments – 30¢ x $25,000 = $7,500. This would be added to the dividends from investments balance of $3,500 as this is dividends receivable. Therefore the total for the Statement of Comprehensive Income would be $11,000 i.e. ($3,500+$7,500) and the dividends receivable of $7,500 will appear in the Statement of Financial Position under Current Assets. Note 5:
The amount of $80,000 is now a "bad debt to be written off" therefore: Double entry: Debit Bad Debt Expense Account $80,000 Credit Accounts Receivables Account $80,000 |
AuthorThe author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor. Archives
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