An asset having a cost of $200 000 and accumulated depreciation

An asset having a cost of $200 000 and accumulated depreciation of $40 000 is revalued to $240 000 at the beginning of the year. Depreciation for the year is based on the revalued amount and the remaining useful life of eight years. Shareholders’ equity, before adjusting for the above revaluation and subsequent depreciation, is as follows:

 

Share capital 600 000
Revaluation surplus 90 000
Capital profits reserve 170 000
Retained earnings 140 000
Total 1 000 000

 

Required:

Prepare journal entries to reflect the revaluation of the asset and the subsequent depreciation of the revalued asset. Which of the equity accounts would be affected directly or indirectly by the revaluation?


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InvisiGuard Ltd sells security doors. Majority of its sales

InvisiGuard Ltd sells security doors. Majority of its sales are on credit except small amount of cash sales each year. The accounting records at 30 June 2019 reveal the following. Ignore GST.   Credit sales (for the year of 2019) $2,100,000 Cash sales (for the year of 2019) 20,000 Credit sales returns and allowances (for the year of 2019) 80,000 Accounts receivable (balance at 30 June 2019) 593,000 Allowance for doubtful debts (credit balance at 30 June 2019) 2,800   The company’s yearly bad debts expense had been estimated at 2.5% of net credit sales revenue in the past. The management of InvisiGuard Ltd has decided to compare the current method with an ageing of accounts receivable method. The following analysis…


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Club York is located in the center of Sydney

Club York is located in the center of Sydney. In a major refurbishment, it purchased a new sound system and a new lighting system on 1 March 2019. The sound system cost $35,000 to purchase and $4,500 to install. The lighting system cost $55,000. The sound system has a useful life of 8 years and residual value $500. The lighting system has a useful life of 5 years and no residual value. Both are depreciated on a straight-line basis. Club York’s accounting period ends on 30 June each year. It has adopted straight-line method of depreciation.   Required: What is the cost and the carrying value for the assets discussed above as at 30 June 2019? Would Club York’s profit be…


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XY Ltd’s sells T-shirts. It uses the periodic inventory system

XY Ltd’s sells T-shirts. It uses the periodic inventory system. It’s inventory at the beginning of the month June and all purchases during the month of June 2019 are provided as below. Ignore GST.

 

    Units Total cost ($)
1/6 Beginning inventory 1050 18,900
10/6 Purchase 750 14,175
15/6 Purchase 450 8,910
23/6 Purchase 750 15,750
  Totals 3,000 $57,735

 

A physical count on 30 June verified that 975 units were on hand.

 

Required:

  1. Determine the Ending inventory and Cost of Sales for the month of June, using the FIFO costing method.
  2. If all inventories are sold in the same price of $50, prepare the relevant part of the income statement for the month of June.

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The following information is produced – M&N Windows Ltd

The following information is produced by comparing the cash deposits and withdrawals recorded by the M&N Windows Ltd for the month with their most recent bank statement received at 30 June 2019: a. M&N Windows Ltd’ cash at bank ledger at 30 June 2019 is: $75,864 b. Credit balance as per bank statement as at 30 June 2019 is: $101,160 c. Bank statement shows an electronic transfer from a customer of $3,864 d. Deposits in transit, $12,540 e. Interest earned on bank account, $75 f. Unpresented cheques, $37,407 g. Service charge included in bank statement, $150 h. Cheque for insurance expense, $5,370 incorrectly recorded in books as $5,910 i. A dishonoured cheque written by a client Jim Smith, $3,900 The entity…


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Jim’s Cleaning Services prepares financial statements

Jim’s Cleaning Services prepares financial statements at the end of each month. The following information is in relation to the month of July. 1. On 1 July, rent of $3,600 for the 6-month period ending 31 December is paid. 2. A 1-year insurance policy is purchased on 1 July for $1,560. 3. On 10 July, the Cross Hotel paid the business $2,800 in advance for doing their cleaning for the next 3 months. 30% of the cleaning work has been provided in the month of July. 4. The cleaning supplies of $2,340 was purchased on 15 July. The supplies account had a $260 debit balance on 1 July and $220 of supplies are on hand as at 31 July. 5. The…


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New Age IT Solutions had net profit margin of

New Age IT Solutions had net profit margin of 0.35 on sales of $5 000 000 during 2020. In addition, the firm’s total assets were $4 500 000, and its debt ratio is 0.45. Required:
a. What was New Age IT Solutions’ return on equity (ROE) in 2020?

b. What was return on assets (ROA) of the company in 2020?
c. Calculate earnings per share (EPS) and price earnings ratio (PE) of the company if it has total shares outstanding of 50,000 with a market price of $85 per share?


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Black Gold Ltd. currently has the following capital structure

Black Gold Ltd. currently has the following capital structure: Debt funding:  A non-callable bond that pays annually 10.5% coupon rate with an annual before-tax yield to maturity of 9.7%. The bond issue has face value of $1,000 and will mature in 16 years. Ordinary equity funding: An ordinary share that just paid a $6.50 dividend per share in the current financial year. The firm is maintaining 4.5% annual growth rate in dividend, which is expected to continue indefinitely. Hybrid – funding: A preferred share with face value of $100, paying fixed dividend rate of 15%.   Required: Calculate the current price of the corporate bond? Calculate the current price of the ordinary share if the average return of the shares in…


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Net profit of Harper Holding Ltd in the current year

Net profit of Harper Holding Ltd in the current year is $3,546,000. The company is planning to launch a project that will requires an investment of $1,045,000 next year. Today the company’s stock has market value of $72/share. Harper Holding Ltd has the current capital structure of 65% in equity and 35% in debt. Required: How much dividend can Harper Holding Ltd pay its shareholders this year and what is dividend payout ratio of the company. Assume the Residual Dividend Payout Policy applies. The company is paying a cash dividend of $5.50/share plus an extra-cash dividend of $2.5/share. Tomorrow the stock will go ex-dividend. Calculate the ex-dividend price tomorrow morning. Assuming the tax on dividend is 15%? M&T Ltd. is a…


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Leon has in his investment a portfolio

Leon has in his investment a portfolio that paid him the rate of returns of 14 %, -13%, 15.6%, 17% and 19.5% over the past five years. Required: Calculate the arithmetic average return (AAR) and geometric average return (GAR) of the portfolio? If someone asks you what is the actual compounding rate of return of Leon’s portfolio over the past five year, which one (AAR or GAR) will be a better answer? Following is forecast for economic situation and Leon’s portfolio returns next year, calculate the expected return, variance and standard deviation of the portfolio. State of economy Probability Rate of returns Mild Recession 0.25 -2.5% Normal 0.45 13.5% Growth 0.30 20%   c)  Assume that expected return of the stock…


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On January 1, 20X1, Popular Creek Corporation

On January 1, 20X1, Popular Creek Corporation organized RoadTime Company as a subsidiary in Switzerland with an initial investment cost of Swiss francs (SFr) 60,000. RoadTime’s December 31, 20X1, Trial balance in SFr is as follows:     Debit (SFr)   Credit (SFr) Cash 7000     Accounts Receivable 20000     Receivable from Popular Creek 5000     Inventory 25000     Plant and Equipment 100000     Accumulated Depreciation     10000 Accounts Payable     12000 Bonds Payable     50000 Common Stock     60000 Sales     150000 Cost of goods sold 70000     Depreciation Expense 10000     Operating Expense 30000     Dividend paid 15000     Total SFr282,000   SFr 282,000  …


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Magnum Ltd has the following capital structure

Magnum Ltd has the following capital structure: Ordinary Equity: 68 000 ordinary shares outstanding at a market price of $35 per share. The shares have just paid a $1.85 annual dividend and have a dividend growth rate of 2.5%. Preference Equity: There are 15 000 preference shares with an 8% dividend rate, outstanding at a market price of $75 a share. The preference shares have a par value of $100. Debts: The outstanding bonds mature in 20 years, have a total face value of $850 000, a face value per bond of $1000 and a market price of $1196.4 each. The bonds have before tax YTM 8%. The marginal tax rate of the firm is 35%. Required: Calculate the current market…


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