ACC 100 Chapter 2: ACC100 Chapter 2

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greensheep522

3 Nov 2016

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They have discussed how to make the financial information look as good as possible so they can get the maximum loan necessary to expand. Tees inc. is in the secondary sector because they manufacture designer t-shirts, which. Means that they turn raw materials into products. A wholesaler is someone who earns profit by buying large quantities of goods from manufacturers, warehouse them, and the resells them to retailers. The bank is a stakeholder of tees inc. because they require information and data from the. Company in order to make decisions on whether to give them a loan or not. The banks objective with regards to tees inc. would be to decide if the company has the. Ability to pay the loan back to them in the future. I would want the information to be faithful, relevant, timely, and understandable. Because the information should be truthful and free of any error, should be applicable to.

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Computers R Us Inc. began their business in January 1, 2015 and recently lost their accountant. Thankfully, they have been able to hire a fine accounting/finance student from University. They have provided you with the unadjusted trial balance for Computers R Us Inc. as of 12/31/17. The previous accountant recorded all original entries involving cash, etc. during the year. However, at year-end the previous accountant would make all necessary adjusting/reclassification journal entries so that the principles of US GAAP were followed. Your task will be to create and record all necessary adjusting, correcting, and reclassification entries so that 2017 financial statements in accordance with US GAAP can be issued. The below information was discovered by reviewing contracts, agreements, correspondence and discussions with management.

1. On the âAdjusting Journal Entriesâ worksheet, prepare in journal entry form all adjusting and correcting journal entries based on the following information. All information was provided to you as of 12/31/2017. (Round all numbers to the nearest dollar).

a. Unadjusted cash balance is Debit $218,000. Computers R Us does banking at three different financial institutions. The details are as follows:

Bank Name	Balance
Capital Bank	$ 85,000
Capital Bank	$ (12,000)
1st Sony Bank	$ 170,000
Sunny Bank	$ (25,000)

What is the adjusting journal entry for this?

harlequinwolf147

Acme Inc. is a wholesaler and distributor of electricalcomponents. The most recent draft financial statements of thebusiness revealed the following:

Income Statement for the Year (in millions)

Sales revenue 14.2

Opening inventories 3.2

Purchases 8.4

Goods available for sale 11.6

Closing inventories (3.8)

Cost of goods sold (7.8)

Gross profit 6.4

Administration expenses (3.0)

Distribution expenses (2.1)

Operating profit 1.3

Finance costs (0.8)

Profit before taxation (0.5)

Tax (0.2)

Profit for the period 0.3

Statement of Financial Positions as at the End of the Year (inMillions)

ASSETS

Noncurrent Assets

Property, plant, and equipment

Land and buildings 4.0

Equipment 1.1

Motor vehicles 0.4

Current Assets 5.5

Inventories 3.8

Trade receivables 2.9

Cash at bank 0.2

Total Assets 12.4

EQUITY AND LIABILITIES

Equity

Share capital 2.1

Retained earning 1.6

Noncurrent Liabilities 3.7

Loan notes (secured on property) 3.9

Current Liabilities

Trade payables 2.2

Short-term borrowings 2.6

4.8

Total equity and liabilities 12.4

Additional information: Land and buildings are shown at theircurrent market value. Equipment and motor vehicles are shown attheir carrying amount (that is, cost less accumulateddepreciation). ï· No dividends have been paid to ordinaryshareholders for the past three years.

In recent months, suppliers (trade payables) have been pressingfor payment. The chief executive has, consequently, decided toreduce their level to an average of 40 days outstanding. To achievethis, she has decided to approach the bank with a view toincreasing the overdraft (the short-term borrowings consist of onlya bank overdraft). The business is currently paying 10 percent ayear interest on the overdraft.

Identify four sources of finance (internal or external, butexcluding a bank overdraft) that may be suitable to finance thereduction in trade payables, and state, with reasons, which ofthese you consider the most appropriate.

Based on the information given, complete the followingtasks:

Comment on the liquidity position of the business.

Calculate the amount of finance required to reduce tradepayables, from the level shown on the statement of financialposition, to an average of 40 days outstanding.

State, with reasons, how you consider the bank would react tothe proposal to grant an additional overdraft facility.

magentalouse225

Business Decision Problem Crescent Paints, Inc., a paintmanufacturer, has been in business for

five years. The company has had modest profits and hasexperienced few operating difficulties

until this year, 2016, when president Alice Becknell discussedher companyâs working capital

problems with you, a loan officer at Granite Bank. Becknellexplained that expanding her firm has

created difficulties in meeting obligations when they come dueand in taking advantage of cash

discounts offered by manufacturers for the timely payment of thecompanyâs accounts payable.

She would like to borrow $50,000 from Granite Bank. At yourrequest, Becknell submits the fol-

lowing financial data for the past two years:

2016 2015

Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . $2,000,000$1,750,000

Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 1,320,000 1,170,000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 42,000 33,600

Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 22,000 18,000

December 31, 2014, data. . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1,100,000

Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 205,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 350,000

CRESCENT PAINTS, INC.

Balance Sheets

Dec. 31, 2016 Dec. 31, 2015

Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $ 31,000 $ 50,000

Accounts receivable (net). . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 345,000 250,000

Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 525,000 425,000

Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 11,000

6,000

Total Current Assets . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 912,000 731,000

Plant assets (net) . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 483,000 444,000

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . $1,395,000 $ 1,175,000

CRESCENT PAINTS, INC.

Balance Sheets

Dec. 31, 2016 Dec. 31, 2015

Liabilities and Stockholdersâ Equity

Notes payableâbanks. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . $ 100,000 $ 35,000

Accounts payable. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 244,000 190,000

Accrued liabilities . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 96,000

85,000

Total Current Liabilities. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 440,000 310,000

10% Mortgage payable . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . 190,000

250,000

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . 630,000 560,000

Common stock. . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 665,000 535,000

Retained earnings . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 100,000

80,000

Total Stockholdersâ Equity . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 765,000 615,000

Total Liabilities and Stockholdersâ Equity . . . . . . . . . . .. . . . . . . . . $1,395,000 $1,175,000

Calculate the following items for both years from the given dataand then compare them with the

median ratios for paint manufacturers provided by a commercialcredit firm:

Median Ratios for

Paint Manufacturers

Current ratio . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 2.5

Quick ratio . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . 1.3

Accounts receivable turnover. . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . 8.1

Average collection period. . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 44.9 days

Inventory turnover . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.9

Debt-to-equity ratio . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 0.78

Return on assets . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 4.8%

Return on sales . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 2.4%

Calculate the following items for both years from the given dataand then compare them with the

median ratios for paint manufacturers provided by a commercialcredit firm:

ACC 100 Chapter 2: ACC100 Chapter 2

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