ACT 201: Assignment (100)

1. Write short notes on the following accounting principles with proper examples: (9)
a) Consistency
b) Going Concern
c) Periodicity
d) Revenue Recognition Principle
e) Matching Concept
f) Accrual Basis of Accounting

2. Baker Corporation provided the following Statements for 2014-15 –

Balance Sheet 2015 2014

Assets $ $
Cash 40,000 70,000
Accounts Receivable 320,000 350,000
Inventory 460,000 320,000
Total Current Asset 820,000 740,000
Gross Fixed Assets 560,000 520,000
Accumulated Depreciation 180,000 150,000
Net Fixed Asset 380,000 370,000
Total Asset 1,200,000 1,110,000
Liabilities & Stockholders’ Equity
Current Liabilities
Accounts Payable 390,000 320,000
Notes Payable 110,000 90,000
Accrued Expense 20,000 20,000
Total Current Liabilities 520,000 430,000
Long Term Debt 320,000 350,000
Total Liabilities 840,000 780,000
Stockholders’ Equity
Common Stock at par 100,000 100,000
Share Premium Reserve 150,000 150,000
Retained Earnings 110,000 80,000
Total Liabilities & Stockholders’ Equity 1,200,000 1,110,000

Income Statement 2015 2014

$ $
Sales 2,200,000 2,400,000
Cogs 1,420,000 1,700,000
Gross Profit 780,000 700,000
Operating Expenses 600,000 550,000
Operating Income (EBIT) 180,000 150,000
Interest 29,000 40,000
Earnings before Tax (EBT) 151,000 110,000
Tax (30%) 45,000 33,000
Earnings after Tax (Net Income) 106,000 77,000

Additional Information related to 2015:

 Purchased equipment paying $40,000 cash.

 Annual depreciation expense was $30,000.
 Paid cash dividend of $76,000.
 No sale of fixed asset.
Required

A) Prepare a Cash Flow Statement for the year 2015. (9)

B) Calculate the following Ratios for the year 2014 and 2015-
 Current Ratio
 Quick Ratio
 Accounts Receivable Turnover
 Profit Margin
 Asset Turnover
 ROA
 Return on Common Stockholders’ Equity
 Debt to Asset
 Times Interest Earned ratio. (5)
C) Analyze the performance of the company over time (2014-15) whether it is improving
or deteriorating based on the above ratios. (10)

3. Philips opened a Motel for business on May 1, 2009. His account has extracted the following trial
balance from his books of account as at May 31 2009.
Trial Balance

Dr. ($) Cr. ($)

Cash 2500

Supplies 1900

Prepaid Insurance 2400

Land 15000

Lodge 70000

Furniture 16800

Accounts payable 5300

Unearned Revenue 3600

Mortgage Loan 35000

Philips, Capital 60000

Rent Revenue 9200

Advertise Expense 500

Salaries Expense 3000

Utilities Expense 1000

Total 113,100 113,100

Notes: The following additional information is to be taken into account.

I. Insurance expires at the rate of $200 per month.

II. Supplies show $900 of unused supplies on May 31.
III. Depreciation $300 on the Lodge and $250 on furniture per month.
IV. Mortgage interest 12% per year. The mortgage was taken on May 1.
V. Unearned rent of $1500 has been earned.
VI. Salaries of $300 are accrued at May 31.

Required:
A. Prepare and complete the whole worksheet. (10)
B. Prepare an Income Statement for the month ended May 31, 2009. (5)
C. Prepare an Owners’ Equity Statement for the month ended May 31, 2009. (5)
D. Prepare a Classified Balance Sheet as at May 31, 2009. (5)
E. Journalize the Closing Entries. (5)
F. Prepare a Post-Closing Trial Balance for the month ended May 31, 2009. (5)

4. You have been assigned as an accountant for comparing the performances of Blackburn
Corporation with Delta Corporation during the year 2019; both are producing textile products.
Both the companies have provided the following information.

Ratio Blackburn Delta

Corporatio
Corporatio n
n

Average Payment Period 76 81

Inventory Turnover 5.1 5.7

P/E Ratio 10.5 10

Average Collection Period 44 51

Debt Ratio 0.37 0.44

Profit Margin 0.082 0.054

Asset Turnover 0.94 0.79

Quick Ratio 1.32 1.46

Current Ratio 2.04 2.08

Times Interest Earned 5.6 3.3

EPS 3.26 1.81

a. In the annual report to the shareholders (owners), the Chief Accountant of Blackburn Corporation
wrote, “2019 was a good year for the firm as we have made higher return compare to our
competitor.” Is the Chief Accountant correct? Explain and use only relevant information in your
analysis. (8)
b. What can you say about both the firms overall efficiency in managing assets, inventories, payables
and receivables? Be as complete as possible given the above information, but do not use any
irrelevant information. (8)
c. You are asked to provide an assessment of both the firms’ liquidity and leverage (debt) position. Be
as complete as possible given the above information, but do not use any irrelevant information. (8)
d. Compare the performance of the company based on shareholders’ (owners’) point of view. (8)