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N1612 Week 1 Workshop Question
Required:
This is revision so you should be able to work out the answers without looking anything up. If you cannot do these transactions, you need to spend time this week doing some revision of last year’s financial accounting. Assume the business is using perpetual inventory system.
Giants Ltd has the following balance sheet as at 30th June 2021.
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Giants Ltd |
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Balance sheet as at 30th June 2021 |
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Assets |
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Non-current assets |
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Equipment |
£50,000 |
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Accumulated depreciation |
-£10,000 |
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Total non-current assets |
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£40,000 |
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Current assets |
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Prepaid rent |
£900 |
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Inventory |
£6,000 |
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Trade receivables |
£8,000 |
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Cash at bank |
£5,000 |
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Total current assets |
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£19,900 |
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Total assets |
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£59,900 |
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Equity and Liabilities |
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Equity |
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Capital |
£15,000 |
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Retained earnings |
£10,200 |
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Total owners’ equity |
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£25,200 |
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Non-current liabilities |
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Bank loan |
£30,000 |
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Total non-current liabilities |
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£30,000 |
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Current liabilities |
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Wages payable |
£1,200 |
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Trade payables |
£3,500 |
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Total current liabilities |
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£4,700 |
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Total liabilities |
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£34,700 |
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Total equity and liabilities |
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£59,900 |
During the year ended 30th June 2022, Giants Ltd had the following transactions:
1. Purchased inventory on credit for £35,000 (this means the business did not pay cash for the goods purchased).
2. Sold inventory on credit for £62,000 (this means the customers did not pay cash for the goods sold). That inventory had cost £31,000.
3. Received £59,000 from its credit customers.
4. Paid £33,000 of the amount owing to its suppliers.
5. Paid wages of £9,000. £900 was still owed for wages at the end of the year.
6. Paid rent of £4,400 for the period 1st October 2021 to 30th September 2022.
7. Paid interest on the bank loan for the year. The interest rate for the loan is 6% per year.
8. The equipment was purchased on 1st July 2020. It has a useful life of 5 years and a residual value of £0. Straight line depreciation is used.
9. Paid dividends of £4,000.
You are required to:
1. Record the transactions in journal entry format.
2. Prepare an income statement for the year ended 30th June 2022
3. Prepare a statement of changes in owners’ equity for the year ended 30th June 2022
4. Prepare a balance sheet as at 30th June 2022
5. Comment on the liquidity of Giants Ltd using ratio analysis.
To help you:
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Giants Ltd |
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Income statement for the year ended 30th June 2022 |
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Sales |
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Cost of sales |
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Gross profit |
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Wages expense |
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Rent expense |
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Interest expense |
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Depreciation expense |
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Net profit |
Giants Ltd Statement of changes in owners’ equity for the year ended 30th June 2022
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Capital |
Ret earnings |
Total |
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Opening balance |
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Increases |
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Profit for the year |
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Decreases |
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Dividends |
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Closing balance |
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Giants Ltd Balance sheet as at 30th June 2022 |
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Assets |
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Non-current assets |
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Equipment |
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Accumulated depreciation |
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Total non-current assets |
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Current assets |
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Prepaid rent |
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Inventory |
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Trade receivables |
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Cash at bank (w1) |
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Total current assets |
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Total assets |
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Equity and Liabilities |
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Capital |
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Retained earnings |
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Total equity |
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Liabilities |
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Non-current liabilities |
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Bank loan |
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Total non-current liabilities |
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Current liabilities |
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Trade payables |
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Wages payable |
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Total current liabilities |
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Total liabilities |
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Total equity and liabilities |
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