Prepare a statement of financial position

Assignment Help Financial Accounting

Reference no: EM132458991

Problem 1: AAA Products Ltd. is a retailer of sound systems. The company is planning its cash needs for the month of January, 2021. In the past, AAA has had to borrow money during the post-Christmas season to offset a significant decline in sales. The statement of financial position showed the following at December 31, 2020.

	Assets
	Current
	Cash		$20,000
	Accounts receivable		520,000
	Inventory		192,000
			732,000
	PPE, net		6,000,000
			$6,732,000

	Liabilities
	Current
	Operating loan		$200,000
	Accounts payable		171,733
			371,733
	Non-current borrowings		4,000,000
			4,371,733

	Shareholders' Equity
	Share capital		70,000
	Retained earnings		2,290,267
			2,360,267
			$6,732,000

Other information:

a.	Cash collection
i.	% cash sales each month	10%
ii.	% credit sales collected in same month	20%
iii.	% credit sales collected in next month	40%
iv.	% credit sales collected in second month	40%
b.	January total sales	$400,000
c.	November credit sales	$500,000
d.	December credit sales	$400,000
e.	Inventory information
i.	February total sales	$300,000
ii.	Gross profit ratio January and prior	40%
iii.	Gross profit ratio February	30%
iv.	% purchases paid in cash same month	30%
v.	% inventory on hand needed for next month	80%
f.	Accounts payable at Dec. 31 all relate to inventory purchases and will be paid in full in January.

g.	Variable expenses as % of monthly sales	4%
h.	Fixed expenses
i.	Depreciation	$40,000
ii.	Total January fixed expenses, including depreciation	$200,000
i.	Interest is paid monthly on opening balances of the operating loan and non-current debt. Interest rate per month:

		1%
j.	Income taxes will be paid in cash in early 2021. No income taxes were owing at December 31, 2020. the income tax rate on income before taxes is:	20%


k.	Monthly dividends paid to shareholders	$20,000
l.	Budgeted PPE purchases for January (depreciation will be unaffected)
		$10,000
m.	January repayments of principal on non-current debt	$40,000
n.	Minimum cash balance needed at end of January	$30,000
o.	Any excess cash will be used to pay down the operating loan. Maximum operating loan balance at end of January is:	$180,000

p.	Any additional cash needs will be provided by issuing shares.

Required:

P1. Using a format similar to the budget worksheet on the following page, record the above information.

P2. Prepare a statement of financial position at January 31, 2020 and a budgeted income statement, statement of changes in equity, and statement of cash flows for the month ended January 31, 2020. Show all calculations. Prepare the income statement in contribution margin format. For SCF purposes, assume the operating loan is not part of cash and cash equivalents.

ASSETS

LIABILITIES

S/H EQUITY

Trans.

Cash

Acc. Rec.

Invent.

PPE

Op. Loan

Acc. Pay.

L/T Debt

Share Capital

Ret. Earn.

Desc.

Problem 2: Magnum Company manufactures two different products, A and B. Sales and production information for the last year was as follows:

	A	B
Units produced and sold	8,000	7,000
Selling price per unit	$100	$70
Direct material per unit	$30	$35
Direct labour per unit	$20	$10

Fixed manufacturing overhead information is as follows:

	Handling	Cutting	Design	Setup	Total
Fixed MOH	$140,000	$50,000	$80,000	$60,000	$330,000
Ideal MOH support hours	7,000	5,000	1,000	1,000	14,000

Activity	Total Time %	Unit Time in Hours	# of Activities
			Prod. A	Prod. B
Handling	50%	.1	24,000	42,000
Cutting	25%	.1	16,000	28,000
Design changes	15%	15	5	50
Setups	10%	3	200	100
Total	100%

In the past, the company has allocated fixed manufacturing costs using direct labour expense. Income statement results for the year based on the above information are as follows:

	A	B	Total
Revenue	$800,000	$490,000	$1,290,000
Variable expenses
Direct material	240,000	245,000	485,000
Direct labour	160,000	70,000	230,000
	400,000	315,000	715,000
Contribution margin	400,000	175,000	575,000
Less: MOH	229,565	100,435	330,000
Net revenue	$170,435	$74,565	$245,000
Net rev/unit	$21.30	$11

Required: Advise management.

Reference no: EM132458991

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