Question 1 :In 2017, X company sold 10,000 units of its product at an average price of AED 400 per unit. The company reported estimated Returns and allowances in 2017 of AED 200,000. The Materials purchased for X company was AED 2,500,000, the beginning inventory AED 700,000 and ending inventory AED 200,000. Operating expenses (excluding depreciation) for X company in 2017 were AED 400,000 and depreciation expense was AED 100,000. X had AED 2,000,000 in debt outstanding throughout all of 2017.
This debt carried an average interest rate of 10 percent. Finally, X’s tax rate was 40 percent. X’s fiscal year runs from January 1 through December 31. Given this information, construct X’ 2017 multi-step income statement (Describe/ show steps of solution). Answer: Income statement:Gross sales = 4000000 Less Sales returns and allwoances = 200000 Net sales = 3800000Less Cost of goods sold = 3000000 { beginning inventory- ending inventory)+ purchase of materials = (700000-200000)+ 2500000 }Gross profit = 800000Less Total operating expensesOperating expenses = 400000Depreciation = 100000Total operating expense = 500000Operating profit = 300000Less interest expense = 200000 2000000*10%Net profit before tax = 100000Less taxes = 40000 100000*40% Net profit after tax or Net income = 60000Question 2 :X Co. performed services for Client Ahmed in December and billed Ahmed AED 4,000 with terms of net 30 days.
X Co. follows the accrual basis of accounting. In January X Co. received the AED 4,000 from Ahmed . In January X Co. will debit Cash, since cash was received. What account should X Co.
credit in the January entry?Company X will credit accounts recievable in January entry. This is because debit increases the balance and credit decreases the balance, so when X Co. got cash that increased their asset and hence it was entered as debit, whereas the same time the accounts reciveable decreased hence that will be entered in creditQuestion 3 :X Co. has current assets of AED 50,000 and total assets of AED 150,000. X Co.
has current liabilities of AED 30,000 and total liabilities of AED 80,000. Given this information :What is the amount of X’s Co. owner’s equity? Calculate the net working capital ration for X Co. and give your commnets Answer: A) Balance sheet equation: Total assets= Total liabilities+ Owner’s equityTotal asset= 150000, total liabilities= 80000, owner’s equity= x150000= 80000+ xx= 150000-80000, x=70000Working capital ratio= total current assets/total current liabilitiesCurrent assets= 50000, current liabilities= 30000Working capital ration= 50000/30000= 1.667, working capital ratio shows if the company has enogh short term assets to cover short term debts. A good working capital ratio is in the range of 1.
2 to 2.0 and here we found that X Co. has working capital ratio of 1.667 which is good, because less ratio that 1.2 means negative working capital and more than 2.
0 means the company is not using the excess assets effectively. Question 4:Which of the following would not be a current asset?Accounts ReceivableLand Prepaid InsuranceSuppliesAnswer: Land is not a current assetQuestion 5 :How does revenue affect the balance sheet?Answer: Revenues are usually presented on the top of an income statement, but revenue also effetcs the balance sheet in a way that it tends to increase the assets and owner’s equity of a company.Question 6 :Who is the CFO, and where does this individual fit into the corporate hierarchy? What are some of his or her responsibilities?Answer: CFO is the Chief Financial Officer of a company, the one responsible for all the central financial decisions and actions. In a orgainzational structure first comes the board of directors elected by the company’s shareholders and then comes the management team which is directly responsible for the company’s daily operations, CFO falls in the management team of the heirarchy. The responsibilities of a CFO are:Managing cash flow of the companyUnderstanding the company’s liabilitiesMaintaining financial relationships with investment bankers, financial analysts, shareholders.Planning and execution of decisions for providing capital to the company’s requirements.Managing the budget and expenses of the companyManagement of financial risksRecord keepingThank you
