Financial Reporting and Analysis

Assignment 1
Group 9 (Ashish, Pawan, Prateek and Sai) Note: All units unless specified are in USD ($) ____________________________________________________________________________ Problem 1-1: CHARLES COMPANY Balance Sheet As on Dec 31st Liabilities & Owners' Equity Current Liabilities Liability 40000 Cash Owners' Equity 80000 Inventory Other Items TOTAL 120000 TOTAL

Assets Current Assets 12000 95000 13000 120000

____________________________________________________________________________ Problem 1-2: Basic accounting equations used: Current assets + non-current assets = total assets Current liabilities + non-current liabilities + paid-in capital + retained earnings = total liabilities and owners equity Total assets = Total liabilities + owners equity BALANCE SHEET items of MICROTECH COMPANY for 4 years Year 1 Year 2 Year 3 Year 4 113624 90442 85124 69090 410976 198014 162011 151021 524600 288456 247135 220111 56142 240518 214155 13785 524600 40220 78585 173295 -3644 288456 Missing Value 15583 60100 170000 1452 247135 17539 30222 170000 2350 220111

Current assets Noncurrent assets Total assets

Current liabilities Noncurrent liabilities Paid-in capital Retained earnings Total liabilities and owners' equity

____________________________________________________________________________ Problem 1-3: Basic accounting equations used: Sales Cost of goods sold = Gross Margin Gross Margin Other expenses = Profit before tax Profit before tax - tax = Net Income INCOME STATEMENT of ASTROTECH COMPANY for 4 Years Year 1 Year 2 Year 3 Year 4 12011 11968 11545 10000 3011 2992 2886 2502 9000 8976 8659 7498 6201 6429 6296 5329 2799 2547 2363 2169 1120 1019 945 867 1679 1528 1418 1302

Sales Cost of goods sold Gross margin Other expenses Profit before taxes Tax expense Net income

Missing Value ____________________________________________________________________________ Problem 1-4: (a) 1. Cash investment by owner of $20000 2. Purchased equipment worth $7000 by paying $5000 cash and $2000 credit 3. Supplies/Inventory worth $1000 replenished for cash 4. Salaries of $4500 paid by cash 5. Revenues worth $5000 cash and $5000 debt (Accounts receivable) attained 6. Liabilities worth $1500 cleared by cash (Current portion of long term debt). 7. $1000 cash received from an existing debt of $5000 8. Rent of $750 paid in cash 9. Utility expenses of $500 made in cash 10. Travel expenses worth $200 made on credit 11. $200 worth supplies are taken from inventory by owner for personal use.

(b) Changes in companys balance sheet in the month of July ACME CONSULTING changes in Balance sheet Sl. No. Item Change (Delta) 1 Cash 12750 2 Accounts receivable 4000 3 Supplies inventory 800 4 Equipment 7000 5 Accounts payable 700 6 Owners' equity 23850 ( C) Income statement for Acme Consulting for the month of July Description Revenues in cash Revenues receivable Net Income Expenses on floor Gross profit Operating expenses Supplies Accounts payable Salaries Rent Travel Utilities Total OE Profit before tax Tax Profit after Tax Dividend (Personal Use) Retained earnings Amount ($) 5000 5000 10000 0 10000

200 1500 4500 750 200 500 7450 2550 0 2550 200 2350

(d) Changes in cash account: Points 1, 2, 3, 4, 5, 6, 7, 8 and 9 in question 1-4 (a). Giving below:

1. Cash investment by owner of $20000 2. Purchased equipment worth $7000 by paying $5000 cash and $2000 credit 3. Supplies/Inventory worth $1000 replenished for cash 4. Salaries of $4500 paid by cash 5. Revenues worth $5000 cash and $5000 debt (Accounts receivable) attained 6. Liabilities worth $1500 cleared by cash. 7. $1000 cash is paid from an existing debt of $5000 8. Rent of $750 paid in cash 9. Utility expenses of $500 made in cash (e) 1. Travel expenses are done on credit. Hence will be future payments. 2. Supplies/Inventory purchased for $1000 cash and only $200 worth are consumed. 3. Equipment worth $7000 is purchased partly using the cash which wont be reflected in Income statement. 4. Cash $1500 is used to partly pay the Accounts payable. ____________________________________________________________________________ Problem 1-5: (a)

Bon Voyage Travel Balance Sheet format as in problem 1-4 for June Sl.No. Description 1 Investment 2 Prepaid Rent Equipment 3 Purchase Supplies 4 Purchase 5 Advertising 6 Salaries 7 Revenues Debt part 8 repayment Supplies 9 Usage Credit Card 10 Usage TOTAL Cash 25000 -500 Prepaid Accounts Total Owners' Total Equipment Supplies Liabilities Rent Receivable Assets Equity Claims 500 8000 -500 -750 -3000 2000 -5000 -100 500 25000 0 8000 0 -750 -3000 10000 -5000 -100 0 17250 500 8000 400 8000 34150 -100 -1000 30150 1000 4000 -750 -3000 10000 -5000 25000 8000 25000 0 8000 0 -750 -3000 10000 -5000 -100 0 34150

8000

(b) The transactions which changed the basic accounting equation are 1. Owners investment infusion of $25000 as cash 2. Equipment purchase worth $8000 on Credit 3. Advertising expenses worth $750 4. Expenses on salary payments of $3000 5. Revenues worth $10000 in all 6. Loan repayment worth $5000 7. Usage of supplies worth $100

( c) Bon Voyage Travel Income Statement for the month of June Cash 2000 Accounts Receivable 8000 Net Sales Cost of Services Gross Profit Advertising 750 Salaries 3000 Current amount of long term debt 5000 Supplies 100 Operating Expenses Income before income tax Tax Net Income Dividends Retained Earnings (d) Changes in cash account 1. Investment infusion of $25000 2. Withdrawal of $500 for paying rent 3. Purchase of supplies worth 500 4. Advertising costs of 750 5. Salaries of 3000 6. Cash revenue worth 2000 7. Part payment of debt worth 5000 (e) Change in cash account (17250) and the months income (1150) are not same since 1. There is an outstanding debt of 8000 which need to be received 2. Equipment worth 8000 is purchased on credit of which 5000 is cleared. 3. There is a prepaid rent of $500 and supplies worth $400 in the entitys control.

10000 0 10000

8850 1150 0 1150 0 1150

Case 1-2 (Kim Fuller)

QUESTION NO 1
1) The information required by Fuller to manage business are : A) Accounting Information: a) ASSETS: i. Cost of goods sold (CGS), ii. Total revenue from selling the goods, iii. The depreciation value of the tangible assets like computer, machines and trucks. iv. Amount of credit with the Debtors v. Prepaid expenses vi. Amount of Cash with the company vii. Investments done by the company b) LIABLITIES i. ii. iii. iv. v. Owners Equity Notes Payable Amount owed to Creditors Long term debts Total salary paid to all the employees

B) Non Accounting Information : i. How much goods are to be produced. ii. Selecting the suppliers for the raw materials needed. iii. Setting the price of the product. iv. Number of employees needed. v. Renewing material contracts and license. vi. Acquiring new assets and disposing of old assets

QUESTION NUMBER 2

ASSETS Cash

BALANCE SHEET FOR FULLER'S BOTTLING COMPANY AS ON 30 November 2006 LIABILITIES 50000 OE 165000

Land , Machines , Supplies and Computer Warehouse TOTAL

65000 Mortgage 162000 277000 TOTAL

112000

277000

Opening companys owner equity is $165000

QUESTION NUMBER 3
2) To determine the profit and loss of the company over a period of time, Fuller needs to prepare an income statement of the company for the specified period. The formula for preparing the income statement is as follows : Net Income = Total Revenues Total Expenses a) Total Revenues : (Total number of bottles produced during the period) x (Selling price of one bottle)

b) Total expenses : i. Cost of Goods Sold. ii. Operating expenses of the company including cost of maintaining the warehouse, machinery and computers. It also includes the salaries paid to the employees. iii. Tax payable

Fuller can prepare such statements at an yearly basis initially because. After 4-5 years he can reduce the frequency to quarterly basis as the focus would be more on profit making

QUESTION NUMBER 4
3) The changes in assets to be recorded : a) Monitoring cash flow in the company b) Accounting for the depreciation of the tangible assets like machines, computer, warehouse etc. c) Amount The changes in liabilities to be recorded are : a) Monitoring the amount of debts remaining. b) Taxes to be paid every year c) Amount owed to creditors The changes in owners claim are : a) In order to maintain control of the company, Fuller should work towards increasing the owners equity.