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Homework answers / question archive / Mensah, Pardlyde & Chapter 03 without answers to MC questions Point View ACROBAT Tell me what you want to do
Mensah, Pardlyde & Chapter 03 without answers to MC questions Point View ACROBAT Tell me what you want to do... y Narrations Timings w Media Control nitori Splendid Off Splendid On Splendid Demo On April 1, Bear, Inc. paid $2,400 for an insurance premium on a three-year insurance policy. At the end of December, Bear's fiscal year-end, what should be the balance in the prepaid insurance account? a. $2,700 b. $3,000 c. $2,400 d. $1,800 85 Comments Notes otes e 2
Current ratio Expected sales revenue Gross profit as percentage of sales Expenses as a percentage of sales Tax rate on profits Dividend payout ratio Debt to equity ratio Current assets as a percentage of sales Return on equity 2 240000 35% 15% 30% 50% 0.8:1 20% 15%
1 Given, On April 1, Bear Inc. paid $2,400 of insurance premium on three year insurance policy.
So, on April 1, Bear Inc records the payment of insurance as Prepaid Insurance of $2,400.
Insurance premium per year = Total Premium / No.of Years
= $2,400 / 3
Insurance premium per year = $800
Insurance premium related to April 1 - December 31 (9 months) = $800 * (9/12) = $600
So, the Premium accrued at the end of the year is $600
Prepaid Insurance Account at the end of the year = Total Prepaid Insurance - Insurance premium accrued at the end of the year
= $2,400 - $600
Prepaid Insurance Account at the end of the year = $1,800
Hence, Balance of Prepaid Insurance Account at the end of the year is $1,800
So, Option d) $1,800 is correct
2
| Statement of profit or loss | |||||
| $ | |||||
| Sales revenue | 240000 | ||||
| Less: Cost of goods sold | (Note:1) | 84000 | |||
| Gross profit | 156000 | ||||
| Less:Expenses | (240000*15%) | 36000 | |||
| (Sales revenue*Expense as a % of sales) | |||||
| Income before tax | 120000 | ||||
| Less:Tax expense | (240000*30%) | 72000 | |||
| (Sales revenue*Tax rate on profit) | |||||
| Net income | 48000 | ||||
| Note:1 | |||||
| Cost of goods sold=Sales revenue-Gross profit | |||||
| Gross profit=Sales revenue*Gross profit as percentage of sales=240000*35%=$ 84000 | |||||
| Statement of financial position | |||||
| $ | |||||
| Assets | |||||
| Current assets | (240000*20%) | 48000 | |||
| (Sales revenue*Current asset as a % of sales) | |||||
| Long-term assets | (Note:4) | 552000 | |||
| Total assets | 600000 | ||||
| Liabilities and equity | |||||
| Liabilities: | |||||
| Current liabilities | (Note:2) | 24000 | |||
| Long-term liabilities | (Note:3) | 256000 | |||
| Total liabilities | 280000 | ||||
| Equity | (Note:3) | 320000 | |||
| Total liabilities and equity | 600000 | ||||
| Note:2 | |||||
| Current ratio=Current assets/Current liabilities | |||||
| Current liabilities=Current assets/Current ratio=48000/2=$ 24000 | |||||
| Note:3 | |||||
| Debt to equity ratio=Long-term liabilities/Equity | |||||
| Long-term liabilities=Equity*Debt to equity ratio | |||||
| Return on equity=Net income/Equity | |||||
| Equity=Net income/Return on equity=48000/15%=$ 320000 | |||||
| Long-term liabilities=320000*0.8=$ 256000 | |||||
| Note:4 | |||||
| Total assets=Total liabilities and equity=$ 600000 | |||||
| Total assets=Current assets+Long-term assets | |||||
| Long-term assets=Total assets-Current assets=600000-48000=$ 552000 |
