Financial accounting

Exercize 1
The trial balance of company ALOC-C at june 30th is the following

Account LEFT RIGHT

Bank 635.000
Shareholder’s equity 300.000
Additional paid-in capital 200.000
Loans 450.000
Machinery 250.000
Input VAT 80.000
Account Payable 0
Output VAT 30.000
Costs for raw materials 0
Interest expenses 15.000
TOTAL 980.000 980.000
- Identify the business transactions that led the above balances and record the related entries just in the journal
book (assume VAT 20%).
- Record just the bank T-account in the ledger for the previous transactions
- Prepare simplified balance sheet and income statement of company ALOC-C at 30/06/t

b)Journalize (by recording just the journal entries) the following business transactions regarding the
WIN Inc. (Italian company) during the year 20Y1. Dont forgey to record the adjusting entries whenever
it is necessary.

1. 1/1/2OY1: Company WIN decides to raise its equity by issiung nr. 100.000 new shares with par value € 1,00
at a price of 1,50 each. Company WIN receives the 60% of the amount.

2. 18/1/20Y1: Purchase of merchandise for 100,000 Euro. VAT 22% the payment is delayed.

3. 8/2/20Y1: Export of raw materials for 3,000 Euro, the payment is delayed.

4. 1/3/20Y1: The company pays 2,000 Euro in advance for the purchase of merchandise VAT 22%.

5. 1/4/20Y1: Gross wages are 250,000 Euro, welfare deductions 50,000 Euro, tax withholdings 25,000 Euro.
The company’s own contribution to the employees' welfare is 30.000 Euro. The company pays immediately for
the net wages, the welfare liabities and the tax payables.

6. 3/4/20y1: The company receives the invoce for the purchase of merchandise (partly paid in advance with nr.
4) for Euro 8.000. The company pays 50% of the accounts payable. The payment is immediate.

7. 1/7/20Y1: The company buys a building for 300.000 Euro, VAT 10%. Registration charges are 2.000. The
useful life is 20 years.

8. 1/7/20Y1: the company pays 10.000 a six-month insurance policy against demages on the building (VAT is
not due.

9. 30/09/20Y1: at the end of september the Input VAT is 20.000 and the uotput VAT is 40.000. VAT settlement
of the month of august was receivable for 10.000. Journalise (if necessary) the immediate payment of VAT of
september.

10. 31/12/20Y1: The company records depreciations and amortizations for the year 20Y1 for the following
amounts: Equipments 10.000 Euro and Patents 5.000 Euro.
Exercize 2
The trial balance of Company ELPPA at September, 30th Is the following:

ACCOUNT RIGHT RIGHT

Bank X
Shareholders' Equity 600.000
Shareholders Receivable 150.000
Advance payment from customers 50.000
Costs for Raw Materials 40.909
Account Payable 35.500
Foreign Account Recelvable 15.000
Revenues for finished products 15.000
Costs for Healthcare Services 5.500
VAT Settlement Payable Y
TOTAL 211.409 + X 300.500 + Y

- Identify the business transactions that led the above balances and record the related entries just in the journal
book (assume VAT 10%)
- Record the Bank and the VAT related (input,output, settlement) T- accounts in the ledger for the previous
transactions and determine the balance of Bank and VAT Settlement Payable accounts.
Bank (x)=
VAT Settlement Payable (Y)=
- Prepare simplified Balance Sheet and income statement of Company ELPPA at 30/09/t

b) Journalize (by recording just the journal entries) the following business transactions regarding
Company B (Italian company) during the year 20Y1. Don’t forget to record the adjusting entries
whenever it is necessary.

1. 1/1/20Y1 Shareholders invest € 100.000 by undersigning the equity capital of a new company called 'B'. nr.
100.000 shares with a par value of € 1,00 equal to the initial price of each share that is € 1,00. Shareholders
entirely pay their shares.

2. 2/1/20Y1: The company pays 50,000 Euro in advance for the purchase of a building, VAT 10%, which is its
headquarter.

3. 22/1/20Y1: Purchase of merchandise for 100,000 Euro, VAT 22%, the payment is immediate.

4. 8/2/20Y1: Company B sells finished products for 30,000 Euro, VAT 22%, the customer pays immediately.

5. 1/4/20Y1: gross wages are 150.000 Euro, welfare deductions 40.000 Euro, tax witholdings 250.000 Euro.
The company pays immediately for the net wages, the welfare liabilities and tax payable.

6. 1/7/20Y1: The company receives the invoice for the purchase of the building (see n. 2) a building for
300.000 Euro, vat 10%, registration charges are 2.000. Company pays immediately, the useful life is 20 years.

7. Company B, buys wine for 2.000 Euro.

8. 31/12/20Y1 at the end of December, the input VAT is 30.000 Euro and the output VAT is 40.000 Euro. VAT
settlement of the month of November was receivable for 15.000 Euro. Journalise (if necessary) the immediate
payment of VAT of December.

9. 31/12/20Y1: inventory at 31st December is: Raw materials 5.000 Euro, finished products 30.000 Euro.

10. 31/12/20Y1: The company records depreciations and amortizations for the year 20Y1 for the following
amounts: equipment 15.000 Euro and patents 10.000 Euro.
Exercise 3
The trial balance of Company MIA at 31/12/n is the following:

ACCOUNT LEFT RIGHT

Accumulated building 21.000
Depreciation
Shareholder’s equity 300.000
Bank 37.000
Building 700.000
Accounts Payable 427.000
VAT settlement 154.000
Foreign Revenues 90.000
Bulding depreciation 21.000
TOTAL 875.000 875.000

- Identify the business transactions that led the above balances and record the related entries just in the journal
book (assume VAT 22 %).
- Record just the Bank T-account in the ledger for the previous transactions.
- Prepare simplified balance sheet and income statement of Company MIA at 31 I12/ n.

b) Journalize (by recording just the journal entries) the following business transactions regarding the
MICS Inc. (Italian company) during the year 20Y1. Don’t forget to record the adjusting entries
whenever it is necessary.

1. 1 /1/20Y1; Shareholders invest 200,000 Euro by undersigning the equity capital of a new company called
"B", composed by nr. 100.000 shares with a par value of 1.00 Euro at a initial price of 2.00 Euro. Shareholders
entirely pay their shares.

2. 31/01/20Y1: At the end of December, the input VAT balance is 30,000 Euro and the Output VAT balance is
50.000 Euro. VAT Settlement of the month of November was receivable for 15.000 Euro. Journalise (If
necessary) the immediate payment of VAT of December.

3. 8/2/20Y1; Export of raw materials for 5,000 Euro, the payment is delayed.

4. 1/3/20Y1: the company pays 20.000 Euro for a twelve month insurance policy against damages on the
building (VAT is not due).

5. 1/5/20Y1:the bank grants the company a loan for 80.000 Euro, due within 10 years. The annual interest rate
is 10%. instalments are six-monthly (2 times per year) and include a flat principal. On December 1, 20Yl. the
company pays the first installment.

6. 1 /7 /20Y11 Import of merchandise from Canada for 100,000 Euro on credit. The transaction is carried out in
Euro. Customs duties are 5.000 Euro, Transportation costs are 3.000 Euro. VAT 20%.

7. 1/10/20Y1: Employees payment: gross wages are 250,000 Euro, welfare deductions 50,000 Euro, tax
withholdings 25,000 Euro. The company’s own contribution to the employees welfare is 30,000 Euro. The
company pays immediately for the net wages. The welfare liabilities and the tax payables.

8. 1 I11/20Y1 PIurchase of Healthcare services on outright bank payment for 2,000 Euro

9. 31 /12 /20Y The company records depreciations and amortizations for the year 20Y1 for the following:
Plants 40.000 Euro, Patents 25,000 Euro, software 20,000 Euro.
Exercise 4
a) Journalize (only journal book is required) the following transactions regarding FA Ltd. (based in
Italy). Do not forget the adjusting entries.

1. Sele of goods to an Italian costumer for 200,000 Euro (VAT 22%). At the moment of the payment it grants a
discount of 10%.

2. Purchase of machinery for 512,000 Euro on credit. The transportation costs are 3,000 Euro, the installation
and testing expenses 5,000 Euro. VAT 22% applies on all of the transactions.

3. Purchase of raw materials from a US supplier for 90,000 Euro. The courier issues an invoice for
transportation costs (3,000 Euro) and reimbursements for custom duties (7,000 Euro) and VAT at 22%.

4. Purchase of some wine and chocolates for 500 Euro in cash VAT 22%. These goods are not related to the
companys business activity.

5. On 1st june 2017, the bank grants a loan for 300,000 Euro, due within 5 years. The annual interest rate is 5%,
instalments are semi-annual and include flat principal. On 1st December 2017, the company pays the first
installment.

6. Purchase of merchandise from a German supplier for 50,000 Euro (VAT 22%) with outright bank settlement.

7. VAT Settlement for the month of April 2018. Input VAT is 20.000, Output VAT is 25.000, VAT Settlement of
March was receivable for 5,000.

8. Employees payment: gross wages are 400,000 Euro, Tax deductions are 75,000 Euro, Welfare deductions
90,000 Euro. The company's own contribution for its employees' welfare is 80,000 Euro (Taxes and Welfare
witholdings are not paid yet).

9. Purchase of merchandise for 50,000 Euro (VAT 10%). A fifth of the purchased goods are found faulty and
therefore returned to the supplier.

10. The company accounts for depreciation and amortization of its assets: Buildings 10,000 Euro; Plant and
Equipment 15,000 Euro; Patents 7,000 Euro.

11. On 31st December 2017, the company records accrued interests on the loan of previous transaction nr.5.

12. On 15th Feburary 2018, the company pays 30,000 Euro in advance to a supplier (VAT 22%). On 15th
March 2018 it purchases the raw materials for 50,000 Euro (VAT 22%) from the same supplier.
b)The trial balance of Company B at 31/12/n is the following :

ACCOUNT LEFT RIGHT

Accumulated machinery depreciatiton 2.400
Bank 72.560
Additional paid-in capital 50.000
VAT settlement 8.360
Revenues 80.000
Machinery 12.000
Advance payments to supplier 30.000
Shareholders receivables 75.000
Machinery depreciation 2.400
Accounts receivable 48.800
Share capital 100.000
TOTAL 240.760 240.760

- Identify the business transactions that led the above balances and record the related entries in the
ledger and in the journal (assume VAT 22%).
- Prepare simplified Balance Sheet and Income Statement of company B at 31/12/n.

OPEN QUESTIONS
-Describe in 15 lines the Accounting Equation.
-Describe in 15 lines the main difference between cash flow statement and income statement.