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 customer paid $5,000 owed to Delphi Enterprise.
- On 25 July, the company declared dividends of $20,000 to be paid 1 month later.
- 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.
