No. 2(c): Below are the related explanations and the journal entries with narratives to record the transactions of Bernice Inc.
Note 1: The par value of the share is $10, however the 15,000 shares were exchanged for assets worth $240,000 therefore this means that they were issued at a value of $16 per share, ($240,000/1500 shares). The excess of $6, ($16-$6), is the par value is the share’s premium. Notes 2 and 3: Bernice Inc purchased 35% of the outstanding shares of Fly Corporation and Fly Corporation paid out a total cash dividend of $120,000. Therefore Bernice Inc received 35% of $120,000 = $42,000. Note 4: The loan interest due is calculated at $80,000 x 10% x 3/12 since only three (3) months interest has been accrued. Note 5: The value of the stock dividend paid is $10 x 9,000 shares.
4 Comments
WORKINGS:
Note 2: The invoices for the utilities NOT received for June $12,000 is to be treated as a prepayment. Therefore $12,000 will be recorded under the Current Assets section of the Statement of Financial Position. The balance of $70,000 for utilities from the trial balance will be adjusted to $58,000 ($70,000-$12,000), to account for the prepayment. Note 3: The $2,000 prepayment for July and August 2011 will be recorded under the Current Assets section of the Statement of Financial Position. The balance of $14,000 for insurance from the trial balance will be adjusted to $12,000 ($14,000-$2,000), to account for the prepayment. Note 4: Depreciation on Fixtures and Fittings: 25% x [$226,000-$88,000] = $34,500 for year 2011. This is the depreciation charge for the Statement of Comprehensive Income. Accumulated depreciation charged on Fixtures and Fittings as at June 30th, 2011 - [$88,000 + $34,500] = $122,500. This is the accumulated depreciation figure for the Statement of Financial Position. Note 5: Depreciation on Buildings: 5% x [$592,000] = $29,600 for year 2011. This is the depreciation charge for the Statement of Comprehensive Income. Accumulated depreciation charged on Buildings as at June 30th, 2011 - [$48,000 + $29,600] = $77,600. This is the accumulated depreciation figure for the Statement of Financial Position. Note 6: The land has been revalued upwards therefore the double entry to record the revaluation of land is: Debit: Land Account $12,000 Credit: Revaluation Reserve Account $12,000 Note the Revaluation Reserve Account will appear in the Statement of Financial Position. Note 7: The long term loan will be recorded as follows: $10,000 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 $30,000, ($40,000-$10,000) 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 8: The income tax liability of $40,000 is an expense and will appear in the Statement of Comprehensive Income. This figure will also be recorded under the Current Liabilities section of the Statement of Financial Position as it is an accrual. No. 2(a): Completed table showing which characteristics are applicable to each type of business structure: No. 2(b) (i): Below are the necessary double entries related to the preparation of the Capital Adjustment Account for the partnership before the admittance of Janet:
No. 2(c): Below are the necessary journal entries to record the issue of ordinary shares by Fancy Beachwear Inc. over the period 2009-2011. Please note that the journal entries were not a requirement of this question, but they are listed purely for teaching purposes.
Question #3(a)
In the table below shows the computed ratios of both Panorama Company and the Kaiso Fiesta Company. Only one (1) benefit for each type of business entity was required, however for the sake of expanding students' knowledge, three (3) benefits are listed for each below.
2. Benefits of operating as a partnership:
3. Benefits of operating as a company/corporation:
4. Benefits of operating as a non-governmental organization (NGO):
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Note 1 A sinking bond fund refers to money that a company was required to set aside in order to repurchase some of the bonds payable it has in issue, at some point in the future. A sinking bond fund is therefore a non-current asset that should be presented under the heading "Investments". To correct the presentation of this item $12,000 needs to be deducted from the current cash balance and the Sinking Bond Fund should be displayed in the non-current asset section of the Balance Sheet. Note 2 The allowance for doubtful debt balance should be shown separately on the Balance Sheet even though it is deducted from the accounts receivable balance to arrive at net accounts receivables. Note 3 $5,000 of the mortgage balance should be shown under the current liabilities section of the Balance Sheet as this portion is due to be paid in one year's time. The balance of $70,000 will appear under the non-current liabilities section. Note 4
The cost of the equipment $112,000 and the accumulated depreciation of $28,000, figure should both be shown on the face of the classified Balance Sheet, in the non-current assets section. Below is the Multi-Step Income Statement for Pamponette Company for the year ended 31st December, 2010. 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!
Workings:
Important note; the year end for James Sargeant Compnay is the 31st March, 2009 Note 1 One month's prepayment for rent was made for April 2009. The value of the prepayment is $5,550/6mths = $925. Note 2 Electricity has been accrued up to March 2009, but has only been paid up to 31st December, 2008. Therefore the entire amount of $1,785 must be recorded as an accrual. Note 3 Calculation of the depreciation expense for the year ended 31st December, 2009 - 18% ($138,900-$45,500) = $16,812. Note 4 Inventory should be valued at the lower of cost and net realizable value. The cost of the inventory is $2,645 and its net realizable value is $4,000-$2,250 = $1,750. Therefore the value of the stock needs to be reduced by $895, that is $2,645-$1,750. Note 5 The updated provision for doubtful debt balance is 8% of $20,000 = $1,600. Therefore the current provision of $1,000 needs to be increased by $600. Contingency Liabilities and Contingency Assets.
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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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