Accounting for Finance

Eric Cauvin
Exercises 2

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10- You are the accountant for a consulting company. The company has the following
Balance Sheet at the end of 2013.

CURRENT ASSETS CURRENT LIABILITIES

Cash 600 Income tax payable 500

Debtors 2,000 Creditors 3,400

NON-CURRENT ASSETS NON-CURRENT LIABILITIES

Land 400 Long-term loan 1,000

Building 4,000
Less: Accumulated (500) OWNERS’EQUITY
depreciation
Tools and Equipment 3,500 Capital stock 3,000
Less: Accumulated (1,000) Retained earnings 500
depreciation Net income 600(*)

9,000 9,000
(*) 2/3 will be paid as dividend.

For the first quarter of 2014, transactions are expected to be as follows:

1- A new land is purchased at a cost of 200. The full price is paid from the bank
account.
2- The long-term loan is repaid: 400 (interest expense of 100 included).
3- Merlin borrows 500 from a finance business. The loan is to be repaid in five
years’ time.
4- The Capital stock is increased by 500.
5- Invoices are sent to some clients. The total of the invoiced amount is 11,500.
Clients have to pay immediately.
6- Invoices are sent to some clients. The total of the invoiced amount is 4,500, on
account.
7- Salaries are paid: 9,000.
8- Depreciation expense: building: 200; tools and equipment: 300.
9- Payment is made to the Insurance Company for 1,000.
10- Bill is received for utilities expense: 3,000.

Income tax rate: 33.1/3%.

Prepare the Cash-Flows Statement, the Income Statement and the Balance Sheet for
the first quarter of 2014.

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11- Income Statement and Balance Sheet from Trial Balance.

Trial Balance 2006 DR (K€) CR (K€)

Share Capital 6,000
Land and Buildings 4,000
Plant and Machinery 3,000
Debtors 5,000
Creditors 4,000
Purchases 6,000
Sales 17,000
Investment Income 100
Distribution Expenses 1,000
Advertising 2,000
Bank Overdraft Interest 1,000
Salaries 2,000
Cash on hand 1,000
Bank Overdraft 1,000
Stock (at January 1st) 2,000
Rent and Rates 2,000
Administration Expenses 3,000
Stock Exchange Investments 2,000
Long-term Loan 5,900

TOTAL 34,000 34,000

Closing stock was valued at €3,000.

Prepare an Income Statement for the year and a Balance Sheet.

12- You are the accountant for a merchandising company. The company has the
following Balance Sheet at the end of 2013.

CURRENT ASSETS CURRENT LIABILITIES

Cash 600 Income tax payable 500

Debtors 2,000 Creditors 3,400
Inventories 7,000
NON-CURRENT LIABILITIES
NON-CURRENT ASSETS
Long-term loan 2,000
Land 400
Building 4,000 OWNERS’EQUITY
Less: Accumulated (500)
depreciation Capital stock 8,000
Tools and Equipment 3,500 Retained earnings 1,500
Less: Accumulated (1,000) Net income 600(*)
depreciation

16,000 16,000
(*) 2/3 will be paid as dividend.

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For the first quarter of 2014, transactions are expected to be as follows:

1- A new land is purchased at a cost of 200. The full price is paid from the bank
account.
2- The long-term loan is repaid: 400 (interest expense of 100 included).
3- Merlin borrows 500 from a finance business. The loan is to be repaid in five
years’ time.
4- The Capital stock is increased by 500.
5- Invoices are sent to some clients. The total of the invoiced amount is 9,100.
Clients have to pay immediately.
6- Invoices are sent to some clients. The total of the invoiced amount is 12,000,
on account.
7- Salaries are paid: 4,000.
8- Depreciation expense: building: 200; tools and equipment: 300.
9- Payment is made to the Insurance Company for 1,000.
10- Utilities are paid 2,000.
11- Goods are purchased at a cost of 8,000. The full price is to be paid within 120
days.
12- The closing stock is valued at 9,000.

Income tax rate: 33.1/3%.

Prepare the Cash-Flows Statement, the Income Statement and the Balance Sheet for
the first quarter of 2014.

13- The following list of transactions relates to a television repair business, Peter
(Television) Company, during July, its first month of business.

July Transaction £
1 Owner puts cash into the business 10,000
2 Buy a vehicle for cash 6,500
3 Receive a bill for electricity consumed 125
4 Purchase stationery for office use, paying cash 250
5 Pay the electricity bill in cash 125
6 Pay monthly rental for a computer, used to keep customer records 240
7 Buy spare parts for cash, to use in repairs 150
8 Buy spare parts on credit terms 3,750
9 Pay garage service bills for van, using cash 360
10 Fill van with petrol, using credit account at local garage, to be paid
at the start of next month 85
11 Carry out repairs for customers, for cash 4,060
12 Carry out repairs for customers, on credit terms 1,605
13 Pay wages to an employee 850
14 Owner takes cash for personal use 1,350
15 The owner checks the stock of spare parts at the end of the month
and estimates it to be worth £1,600 measured at cost price. 1,600

(a) Complete the following spreadsheet.

(b) Show that the spreadsheet totals satisfy the accounting equation.
(c) Using the spreadsheet from (a), prepare one of each of the following
financial statements for the television repair business, Peter (Television)
Company, in the month of July:

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(i) a cash flow statement;
(ii) a statement of profit or loss; and
(iii) a balance sheet.

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 Assets Liabilities Ownership Interest

Date Transaction or event Cash and Trade Stock of Vehicles Trade Capital Revenue Expenses
bank debtors spare parts creditors contrib. or + –
withdrawn
July £ £ £ £ £ £ £ £
1 Owner puts cash into the business
2 Buy a vehicle for cash
3 Receive a bill for electricity consumed
4 Purchase stationery for office use, paying cash
5 Pay the electricity bill in cash
6 Pay monthly rental for a computer, used to keep
customer records
7 Buy spare parts for cash, to use in repairs
8 Buy spare parts on credit terms
9 Pay garage service bills for van, using cash
10 Fill van with petrol, using credit account at local
garage, to be paid at the start of next month
11 Carry out repairs for cash
12 Carry out repairs on credit terms
13 Pay wages to an employee
14 Owner takes cash for personal use
15 The owner checks the stock of spare parts at the
end of the month and estimates it to be worth
£1,600 measured at cost price.
Column totals
Totals of Assets, Liabilities and Ownership interest