Unit 1: May 2013, Question #2 (A)

WORKINGS:
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 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. Thereforethe current provision needs to be increased by - $5,001 - $ $4,482 = $519. 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.
 
Note 7:
Corporation Tax expense = 33 1/3% x $6,567 = $2,188. This figure will be recorded under the Current Liabilities section of the Statement of Financial Position as it is an accrual and in the Statement of Comprehensive Income as an expense.
 
Note 8: 
Bonds payable interest – 10% x $102,600 = $10,260
Double entry:   Debit        Bonds payable interest expenses $10,260
                                Credit       Cash Account     $5,130  
                                Credit       Accrued bond interest   $5,130  
The $10,260 is for the Statement of Comprehensive Income while the accrual of $5,130 will fall under the Current Liabilities section of the Statement of Comprehensive Income.
 
Note 9:
Ordinary stock dividends – $2 x [$300,000/$20] = $2 x 15,000 shares = $30,000
Preference stock dividends – 8% x $120,000 = $9,600
Both the ordinary proposed dividends and the preference shares dividends, will be recorded under the Current Liabilities section of the Statement of Comprehensive Income as they are due to be paid within 1 year.

Adjustment of the Bank Account’s balance to reflect the transaction in Note 8:

Now that all of the additional information has been accounted for the Statement of Comprehensive Income can be prepared. 

Now that the Statement of Comprehensive Income has been completed the Statement of
Retained Earnings can be prepared.

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