AFM123 Lecture Notes - Retained Earnings, Income Statement
The net changes in the balance sheet accounts of Eusey, Inc. forthe year 2011 are shown below:
Account Debit Credit
Cash dr $ 265,600
Accounts receivable cr $ 64,000
Allowance for doubtful accounts cr 14,000
Inventory dr 287,200
Prepaid expenses dr 40,000
Long-term investments cr 144,000
Land dr 300,000
Buildings dr 600,000
Machinery dr 100,000
Office equipment cr 28,000
Buildings cr 24,000
Machinery dr 20,000
Office equipment dr 12,000
Accounts payable dr 233,200
Accrued liabilities cr72,000
Dividends payable cr 128,000
Bonds payable cr 940,000
Preferred stock ($50 par) dr 60,000
Common stock ($10 par) cr 156,000
Additional paid-in capitalâcommon cr 247,200
Retained earnings cr 60,800
Totals $1,898,000 $1,898,000
1.Unaudited Income Statement Data for Year Ended December 31,2011
Income before extraordinary items $420,000
Extraordinary losses: Condemnation of land $132,000
Loss from redemption of preferred stock 20,000 (152,000)
Net income $268,000
2. Cash dividends of $128,000 were declared December 15, 2011,payable January 15, 2012. A 5% stock dividend was issued March 31,2011, when the market value was $22.00 per share.
3. The long-term investments were sold at a $4,000 loss.
4. A building and land which cost $480,000 and had a book value of$300,000 were sold for $400,000. The cost of the land, included inthe cost and book value above, was $20,000.
5. The following entry was made to record an exchange of an oldmachine for a new one:
Machinery dr 160,000
Accumulated DepreciationâMachinery dr 40,000
Machinery cr 60,000
Bonds Payable cr 140,000
6. A fully depreciated copier machine which cost $28,000 waswritten off.
7. Preferred stock of $60,000 par value was redeemed for $80,000;the loss was charged against earnings.
8. The company issued 12,000 shares of its common stock on June 15,2011 for $27 a share. A $2 per share broker underwriting fee wasrecognized as part of Professional Fees Expense in the operatingsection of the income statement. There were 87,600 sharesoutstanding on December 31, 2011.
9. Bonds were issued at 104 on December 31, 2011. The premium wascredited to Interest Revenue.
10. Land that was condemned had a book value of $240,000.
1. Prepare a properly formatted and complete statement of cashflows using the indirect method. Ignore tax effects.
Total Governmental Funds
Preclosing Trial Balance
Cash 1,348,200 (dr)
Investments 7,355,600 (dr)
Due from general fund 3,500 (dr)
Taxes Receivable 189,000 (dr)
Allowance for uncollectable taxes 38,500 (cr)
Interest and penalities receivable 5.250 (dr)
Allowance for uncollectable interest and penalities 476 (cr)
accounts receivable 45,500 (dr)
Allowance for uncollectable accounts 1,750 (cr)
Accrued interest receivable 191,800 (dr)
Inventory of materials and supplies 16,450 (dr)
vouchers payable 1,016,400 (cr)
accrued salaries and wages payable 17,500 (cr)
contracts payable retained percentage 350,000 (cr)
interest payable (on current debt) 1,050 (cr)
unearned operating grant revenues 360,500 (cr)
unearned capital grant revenues 525,000 (cr)
Due to enterprise fund 11,550 (cr)
due to special revenue funds 3,500 (cr)
deferred tax revenues 107,800 (cr)
fund balance (preclosing) 695,049 (cr)
Taxes 3,395,000 (cr)
licenses and permits 311,500 (cr)
Fines and Forfeitures 133,000 (cr)
Unrestricrted grants 367,500 (cr)
Operating Grants 420,000 (cr)
Capital Grants 7,231,000 (cr)
Investment Income 600,000 (cr)
Other Revenues 7,000 (cr)
Current operation expenditures / expenses
General government 274,400 (dr)
public safety 1,417,500 (dr)
streets and roads 861,700 (dr)
health and sanitation 162,400 (dr)
Parks and recreation 65,100 (dr)
Captial outlay expenditures:
for construction 8,890,000 (dr)
for equipment 203,700 (dr)
Debt Service Expenditures:
bond principal retirement 700,000 (dr)
interest and bonds 356,745 (dr)
fiscal agent fees 52,500 (dr)
bond issue costs 35,000 (dr)
Other Financing Sources:
bonds 6,300,000 (cr)
bond premium 42,000 (cr)
Proceeds from sale fo general capital assets 175,000 (cr)
Transfers form general fund 616,000 (cr)
Transfers from Special revenue funds 70,000 (cr)
Transfers from enterprise funds 63,000 (cr)
Other Financing uses:
Transfers to capital projects funds 56,000 (dr)
trasfers to debt service funds 560,000 (dr)
transfers to general fund 70,000 (dr)
Totals 22,860,075 both
1. the beginning trial balance of the general capital assets andgeneral long term liabilities accounts at January 1, 2015 was
land 465,500 (dr)
buildings 4,375,000 (dr)
accumulated depreciation _ buildings 2,730,000 (cr)
machinery and equipment 1,400,000 (dr)
accumulated depreciation machinery and equipment 525,000(cr)
streets and roads 7,000,000 (dr)
accumulated depreciation streets and roads 4,200,000 (dcr
bonds payable 2,800,000(cr)
premium on bonds payable 70,000(cr)
liability for claims andjudgements - long term 490,000 (cr)
compensated absences liability -long term 350,000 (cr)
net position 2,075,500(cr)
2. the balance of the long-termclaims and judgments obligation at december 31, 2015 was 450,000.all claims and judgements of the county are related to health andsanitation.
3. the balance fo the long-termliability for compensated absences at december 31, 2015 was425,000, compensated absence liabilities are generated equally bythe general government, public safety, streets and roads, andhealth and sanitation.
4. the bons issuance occurred atyear end. the equipment purchases occurred at the beginning of theyear.
5. the january 1, 2015 balance ofaccrued salaries and wages payable was 25,000
6. the january 1, 2015 balance ofdeferred tax revenue was 84,000
7. the operating grants revenueswere associated with public safety (100,000) and health andsanitaiton. the capital grants were associated with streets androads.
8. the accrued interst associatedwith bonds at december 31,2015 was 99,000 the january 1 2015balance was 87,500
9. the remaining term of thebonds payable with the premium (70,000) is 10 years. use straightline amortization.
10. the county depereciatesmachinery and equipment over 5 years, building over 20 years, andstreets and roads over 30 years. assume zero salvagevaleus.
11. depreciation expense on thebuildings and on the machinery and equipment is associated withfunctions as follows: general government 10 %, pulbic safety 50%,streets and roads 25%, health and sanitaiton 10%, and parks andrecreation 5%.
12. the cpaital asset sold wasequipment, which cost 500,000 and had accumulated depreciation atthe january 1 sale date of 400,000
13. the county's only internalservice fund provides 75% of its services to enterprise funds andsets its billings equal to its costs of providing services. Theinternal service fund billings to general governmental departmentsduring the year totaled 100,000. billings of 25,000 were associatedwith each functional category of expenditures except parks andrecreation.
Reguired: the december 31, 2015total fund balance (postclosing) was 6,721,274. Prepare a balancesheet conversion worksheet to derive government-wide, governmentalactivities data for Tierney County.
QUESTION 1 (30 Marks: 63 minutes)
The following is the trial balance of Eskimo Limited at 31 December20x8:
ESKIMO LIMITED TRIAL BALANCE AT Debit Credit Retained earnings(1/1/20x8) 145 000 Non- current liabilities: Loan from AB Bank 25000 Revaluation surplus (1/1/20x8) 20 000 Ordinary share capital240 000 Revenue: Sales 580 000 Interest income 12 500 Rent income23 000 Cost of sales 300 000 Interest on bank overdraft 9 500General expense 113 000 Bad debts expense 20 000 Repairs andmaintenance expense 30 000 Marketing expense 22 000 Fuel expense 40000 Depreciation expense 25 000 Salaries 50 000 Investments inlisted companies 50 000 Accounts receivable 250 000 Bank 23 000Current tax payable 12 800 Inventories 120 000 Accounts payable 225000 Land 200 000 Equipment: Cost 100 000 Equipment: Accumulateddepreciation 40 000 Income tax expense 1 800 Dividends 15 000 1 346300 1 346 300
? Share capital constitutes 120 000 ordinary shares of no parvalue. 20 000 shares were issued for N$40 000 on the first day ofthe year. ? The interest and rental income are incidental to mainbusiness operations.
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? Eskimo Limited classified expenses according to their function.Management categorise the functions of the business into the areasof sales, administration and distribution. ? Salaries of N$ 30 000relate to the administrative function and N$20 000 the distributionfunction. ? Depreciation on equipment of N$10 000 relates to theadministrative function and N$15 000 to the distribution function.? The bad debts and marketing expenses relate to the administrationfunction. ? The repairs and maintenance and fuel expenses relate tothe distribution function. ? Dividends of N$15 000 in respect ofthe year ended 31 December 20x7 were declared and paid duringJanuary 20x8. Dividends of N$20 000 in respect of the year ended 31December 20x8 were declared on 15 January 20x9 ? There are nomovements in other comprehensive income.
a) Prepare the statement of profit or loss and other comprehensiveincome (use the expenses by function method) including earnings pershare (EPS) of Eskimo Limited for the financial year ended 31December 20x8 in accordance with International Financial ReportingStandards. (15 marks) b) Prepare the statement of financialposition of Eskimo Limited at 31 December 20x8 in accordance withInternational Financial Reporting Standards. (12 marks) c) Preparethe following notes to the financial statement in accordance withInternational Financial Reporting Standards: (3 marks) a. Summaryof significant policies b. Revenue