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Financial and accounting principles
Course:- Financial Accounting
Reference No.:- EM13259




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A. Jayantha commenced business on 1 January 2010 with equity of $100,000. During the year ending 31 December 2010, he paid $92,400 for purchasing goods for sale (all of which was sold) and $31,450 for various expenses. He received $139,250 by sale of goods. Jayantha has drawn $12,000 in cash and introduced a motor car to the business valued at $10,000.

What is Jayantha's equity at 31 December 2010?

1. $115,400

2. $137,400

3. $127,400

4. $113,400

B. The following information relates to Simonson Engineering as at 30 September 2010:

 

$

Plant and machinery

25,000

Trade payables

18,000

Short-term borrowings

26,000

Inventories

45,000

Property

72,000

Long-term borrowings

51,000

Trade receivables

48,000

Equity at 1 October 2009

117,500

Cash in hand

1,500

Motor vehicles 

15,000

Fixtures and fittings

9,000

Profit for the year to 30 September 2010

18,000

Drawings for the year to 30 September 2010

15,000

Using this information, prepare a statement of financial position for the business using the standard layout illustrated in Example 2.5 on p.48 of Atrill, P., & E. McLaney, (2011) Accounting and Finance for Non-Specialists, 7th edition, Harlow: FT/Prentice Hall.

C. An accountant prepared a statement of financial position for a business. In this statement, the equity of the owner was shown next to the liabilities. This confused the owner, who argued: 'My equity is my major asset and so should be shown as an asset on the statement of financial position'. How would you explain this misunderstanding to the owner?

D. The statement of financial position shows how much a business is worth. Do you agree with this statement? Explain the reasons for your response.

E. Compute the missing amount in the accounting equation for each business.

Name of business

Assets

Liabilities

Equity

Hudson Gift and Cards

 

37,000

35,000

New Street Garage

85,000

 

39,000

Hair Styles

92,000

53,000

 

6. At the year end, the total assets of a business were $189,000 and the total liabilities were $126,000. During the year, the owner withdrew $10,000 and introduced a further $18,000 in equity. The business began the year with total assets $180,000 and total liabilities of $112,000.

What is the profit (loss) for the year?

1. $8,000 (profit)

2. $8,000 (loss)

3. $13,000 (loss)

4. $13,000 (profit)

7. A company that produces a single product provides the following information: budgeted sales of 40,000 units, margin of safety 25% of budgeted sales, total fixed costs $240,000. What is the contribution per unit of the company's product?

1. $8.00

2. $4.80

3. $24.00

4. $6.00

8. A business makes 2,000 units of a particular product. It spent $24,000 on material and it paid its operatives $40,000. Fixed costs of running the factory were $50,000. The salesforce were also paid $18,000 and the head office costs were $100,000. In order to break even the selling price per unit will have to be:

1. $116

2. $66

3. $84

4. $32




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