Question 1 The following were transactions of Delphi Enterprise for the month of July: On 1 July, the company established that they cannot collect $8,000 from a customer and this amount has to be written off. Assumes the company uses the allowance method. On 15 July, the company purchased $3,000 of supplies on credit. On 18 July, the company received a utilities bill amounting to $400. On 20 July, the company entered a contract to buy a new machine costing $20,000 3 months later. The machine will be paid entirely in cash. On 23 July, a

Question 1

The following were transactions of Delphi Enterprise for the month of July:

  1. On 1 July, the company established that they cannot collect $8,000 from a customer and this amount has to be written off. Assumes the company uses the allowance method.
  2. On 15 July, the company purchased $3,000 of supplies on credit.
  3. On 18 July, the company received a utilities bill amounting to $400.
  4. On 20 July, the company entered a contract to buy a new machine costing $20,000 3 months later. The machine will be paid entirely in cash.
  5. On 23 July, a customer paid $5,000 owed to Delphi Enterprise.
  6. On 25 July, the company declared dividends of $20,000 to be paid 1 month later.
  7. On 31 July, the company hired new staff at a monthly salary of $3,100. The new staff will start work on 1 September.

Analyse the above and record the journal entries. Narrations are not required.

  • An analysis of the liquidity and efficiency ratios for CBA Ltd shows the following results.
Ratio 2019 2018
Current ratio 2.4 2.1
Acid-test ratio 0.8 1.2
Days’ sales in inventory 32 days 20 days
Days’ sales uncollected 35 days 25 days
Days’ purchases in accounts payables 70 days 29 days

Use the above financial ratios to analyse the financial performance of CBA Ltd.

 

Question 2

  • On 1 May 2020, Ron Trading purchased a new machine. The following payments relate to the machine.
List price $21,500
Purchase discount 2,000
Transportation cost 300
Repair of damaged parts incurred in transporting the machine 1,000
Fees paid to test the machine before use 500
Fees paid to the installer to install the machine 800
Machine operator’s salary for the first month of operation 3,000
Maintenance costs for the first month of operation 300
  • Identify and compute the cost of the machine to be recognised. Explain your reasoning.
  • Journalise the transactions. Assume the above payments are paid in cash.
  • Smart Enterprise bought a machine costing $40,000 on 1 January 2015. The machine has a useful life of 4 years. The supplier which sold the machine had agreed to take back the machine for $4,000 at the end of the useful life. The company fiscal year-end is 31 December.

Compute the depreciation expense, accumulated depreciation, and net book value of the machine for the years 2015, 2016, 2017, and 2018 using:

  • The straight-line method.
  • The double-declining balance method.

Question 3

  • LCM Trading has the following beginning inventory, purchases, and sales of a particular product for the month of May:
1 May Beginning inventory 30 units at $30 each
4 May Purchase 70 units at $35 each
8 May Sale 60 units
10 May Purchase 60 units at $40 each
15 May Sale 25 units
20 May Sale 35 units
26 May Purchase 60 units at $50 each

Using a perpetual inventory system, compute the cost of goods sold for May and the cost of the ending inventory on 31 May using the weighted average method.

  • Extracts of the statement of cash flows for three companies in the same industry follows.
Company A Company B Company C
Cash flows from operating activities $50,000 $100,000 $200,000
Cash flows from investing activities Proceeds from the sale of plant assets 300,000 200,000 20,000
Purchase of plant assets (100,000) (100,000) (100,000)
Cash flows from financing activities Proceeds from share issuance 50,000 100,000 180,000
Repayment of debt (20,000) (20,000) (20,000)

Examine the above information and explain which company you would invest in.

Question 4

  • Lean Technologies develops and installs learning software for companies.

In January this year, the company generated sales of $155,000 and incurred the following costs:

Materials costs $10,000
Direct labour 40,000
Overhead 20,000
Administrative expense 18,000

Assume there is no beginning and ending inventory.

Define and compute the following for Lean Technologies for January this year:

  • Prime cost.
  • Conversion cost.
  • Operating income.
  • Hendon Company produces and sells table lamps. For the year 2019, the company sold 60,000 units at $56 per unit. Other information includes:
Sales $3,360,000
Less: Variable costs 1,008,000
Contribution margin 2,352,000
Less: Fixed costs 1,254,400
Operating income $1,097,600
  • Use CVP analysis to determine the breakeven point in units and breakeven point in dollars.
  • Use CVP analysis to determine the margin of safety in units and in dollars. (4 marks)
  • Suppose Hendon Company is considering spending more on advertising in the year 2020. They estimate that sales would increase by $200,000 (compared to the year 2019) with extra advertising costing $168,000. Describe how to use CVP analysis to explain whether the company should go ahead with the plan. Show workings.
Reference no: EM132069492

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