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Assignment Chapter 3

1. The Mendelssohn Company manufactures and sells tires, cables, and systems. Their balance sheet as of December 31, X1 shows assets of 1,420 CU including fixed assets of 700 CU and current assets of 720 CU. Liabilities include debt of 110 CU and equity of 1,150 CU. 2. Budgets for the following year X2 include sales of 1,300 CU, purchases of 660 CU, debt payments and receipts, salaries of 400 CU, expenses of 230 CU, taxes of 60 CU, investments of 320 CU, and depreciation of 60 CU. Inventory is budgeted to be 120 CU for raw materials and 150 CU for finished products at year end.

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Beatrice Ballabio
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107 views

Assignment Chapter 3

1. The Mendelssohn Company manufactures and sells tires, cables, and systems. Their balance sheet as of December 31, X1 shows assets of 1,420 CU including fixed assets of 700 CU and current assets of 720 CU. Liabilities include debt of 110 CU and equity of 1,150 CU. 2. Budgets for the following year X2 include sales of 1,300 CU, purchases of 660 CU, debt payments and receipts, salaries of 400 CU, expenses of 230 CU, taxes of 60 CU, investments of 320 CU, and depreciation of 60 CU. Inventory is budgeted to be 120 CU for raw materials and 150 CU for finished products at year end.

Uploaded by

Beatrice Ballabio
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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The Mendelssohn Company manufactures and sells tires, cables and systems on a

national market. The balance sheet at 31 December X1 is presented below.

Balance sheet at 31 December X1 (in thousands of Currency Units)

ASSETS LIABILITIES AND


SHAREHOLDERS’ EQUITY
Fixedassets Shareholders’ equity

ManufacturingEquipment 700 Capital 600


Reserves 250
Currentassets Net IncomeforX11 300
1,150
Inventories Liabilities

• Rawmaterials 100 Financialdebt


• Finishedproducts 120 110
Accountspayable2
Accountsreceivable3 300 70
Incometaxpayable4
Cash at Bank 200 90

Total 1,420 Total 1,420

The following budgets are given (in thousands of Currency Units or CU):

1 - Sales budget: 1,300 CU (1,100 CU will be received from customers during the year).
2 - Purchases budget (raw materials): 660 CU (480 will be paid to suppliers during the
year)
3 - Finance budget: repayment of financial debt for 80 CU. New debt received: 50 CU.
Interest has been paid for 20 CU
4 - Salaries and social charges budget: 400 CU (paid during the year).
5 - External charges budget: 230 CU (paid during the year)
6 - Various taxes budget: 60 CU (paid during the year)
7 - Investment budget: acquisition of fixed assets for 320 CU (paid during the year).
8 - Depreciation budget (including the acquisition of fixed assets): 60 CU.
9 - Increase of capital in cash: 300 CU (received during the year).
10 - Inventoriesbudget:
- Raw materials ending inventory: 120 CU.
- Finished products ending inventory: 150 CU.

The income tax rate is 33.33 %.

Required

Prepare the following pro forma documents for the year X2: cash flow budget, income
statement and balance sheet.

1
To be appropriated in X2: 40 % will be distributed.
2
To be paid in X2.
3
To be received in X2.
4
To be paid in X2.
Review 3.3 Grieg Company (1)

Topic: The accounting process: from the journal to the financial statements (purchases
of merchandise are recorded first in inventory)

Level of difficulty: Low

The Grieg Company was incorporated on 1 January X1. Grieg has five contributors of
share capital. The following events occurred during January X1.

1 The company was incorporated. Common shareholders invested a total of 10,000 CU


cash.

2 Equipment valued of 1,200 CU was acquired for cash.

3 Merchandise inventory was purchased on credit for 9,000 CU.

4 Cash was borrowed from a bank, 500 CU.

5 Merchandise carried in inventory at a cost of 7,000 CU was sold for 11,000 CU (cash
for 6,000 CU and on credit for 5,000 CU).

6 Collection of the above accounts receivable, 4,000 CU.

7 Payment of accounts payable, 8,000 CU (see transaction 3).

8 Depreciation expense of 120 CU was recognized.

Required

1 Prepare an analysis of Grieg Company's transactions and record the entries in the
journal, assuming that the purchases of merchandise are first recorded in inventory
before being consumed or sold to customers (see Chapter 2).

2 Post the entries to the ledger, entering your postings by transaction number.

3 Prepare a trial balance, as of 31 January X1.

4 Prepare a balance sheet as of 31 January X1, and an income statement for the month
of January.

Review 3.4 Grieg Company (2)

Topic: The accounting process: from the journal to the financial statements

The Grieg Company was incorporated on 1 January X1. Grieg has five contributors of
share capital.
Required

1 Prepare an analysis of Grieg Company's transactions (see Review 3.3) and record the
entries in the journal, assuming that the purchases of merchandise are first recorded in
the income statement, i.e., do not transit through an inventory account (see Chapter 2).
You are informed that ending inventory, valued at cost, amounts to 2,000 CU.

2 Post the entries to the ledger, entering your postings by transaction number.

3 Prepare a trial balance, as of 31 January X1.

4 Prepare a balance sheet as of 31 January X1, and an income statement for the month
of January.

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