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Hussain owns a small business selling coffee makers to other businesses
Hussain owns a small business selling coffee makers to other businesses. On 31st December 2019 he extracted the following trial balance.
|
Account Name |
Debit $ |
Credit $ |
|
Sales Revenue |
|
690,200 |
|
Sales returns |
4,200 |
|
|
Opening inventory |
103,600 |
|
|
Purchases |
450,800 |
|
|
Purchase returns |
|
1540 |
|
Freehold property |
280,000 |
|
|
Equipment at cost |
35,000 |
|
|
Accumulated depreciation on equipment |
|
3,500 |
|
Motor vehicle |
56,000 |
|
|
Accumulated depreciation on motor vehicle |
|
11,200 |
|
Salaries and Wages |
13,300 |
|
|
Insurance |
1,680 |
|
|
Motor expenses |
4,760 |
|
|
Advertising expenses |
1,400 |
|
|
Loan interest |
6,300 |
|
|
Receivables |
91,000 |
|
|
Allowance for receivables |
|
4,200 |
|
Payables |
|
79,800 |
|
Cash at bank |
15,400 |
|
|
Bank loan |
|
63,000 |
|
Capital |
|
210,000 |
|
Total |
1,063,440 |
1,063,440 |
The following information is relevant.
- Closing inventory was valued at $98,000.
- Equipment is depreciated by 10% on Straight line basis.
- Motor vehicles are depreciated by 20% on reducing balance basis.
- Accrued wages at the end of 2019 amount to $2,100.
- On 1 November 2019 Hussain paid $560 for insurance which is valid until 31 October 2020.
- Irrecoverable receivables of $4,200 need to be written off.
- Hussain decides to increase the allowance for receivable for five percent of the remaining outstanding receivables.
- Hussain has taken goods worth $2,660 for his own use.
Required:
- Prepare Hussain’s income statement for the year ending 31st December 2019.
- Prepare Hussain’s balance sheet as at December 2019.
Expert Solution
| a.) | Income statement | |||
| For the year ending 31st December 2019 | ||||
| Amount $ | ||||
| Sales revenue | 690,200 | |||
| Less: Sales Return | 4,200 | |||
| Net Sales | 686,000 | |||
| Less: Cost of goods sold | ||||
| Opening Inventory | 103,600 | |||
| Add: Purchases | 450,800 | |||
| Less: Purchase Return | 1,540 | |||
| Less: Drawings | 2,660 | |||
| Less: Closing Inventory | 98,000 | |||
| Cost of goods sold | 452,200 | |||
| Gross Profit | 233,800 | |||
| Less: Operating Expenses | ||||
| Salaries Expense | 15,400 | =13300+2100 | ||
| Insurance Expense | 1,213 | =1680-(560*10/12) | ||
| Bad Debt Expense | 4,340 | =(91000-4200)*5% | ||
| Deperciation Expense-Equipment | 3,500 | =35000*10% | ||
| Deperciation Expense-Motor Vehicles | 8,960 | =(56000-11200)*20% | ||
| Motor Expenses | 4,760 | |||
| Advertising Expense | 1,400 | |||
| Net Operating Income | 194,227 | |||
| Less: Other expenses | ||||
| Loan Interest | 6,300 | |||
| Net Income (loss) | 187,927 | |||
| b.) | Balance Sheet | |||
| As at December 2019 | ||||
| Amount $ | ||||
| Assets | ||||
| Current Assets | ||||
| Cash at Bank | 15,400 | |||
| Receivables ( 91,000 - 4,200 ) | 86,800 | |||
| Less: Allowance for Receivables | 4,340 | 82,460 | ||
| Prepaid Insurance ( 560 x 10/12) | 467 | |||
| Closing Inventory | 98,000 | |||
| Non-Current Assets | ||||
| Equipment at Cost | 35,000 | |||
| Less: Accumulated depreciation (3,500 + 3,500 ) | 7,000 | 28,000 | ||
| Motor Vehicle | 56,000 | |||
| Less: Accumulated depreciation (11,200 + 8,960 ) | 20,160 | 35,840 | ||
| Freehold Property | 280,000 | |||
| Total Assets | 540,167 | |||
| Liabilities | ||||
| Salaries & wages Payable | 2,100 | |||
| Bank Loan | 63,000 | |||
| Payables | 79,800 | |||
| Owner's Equity | ||||
| Capital (210000-2660+187927) | 395,267 | |||
| Total Liabilities & Owner's Equity | 540,167 | |||
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