Question 1
The cash flows shown below were extracted from the accounts of Jason Taylor, a music shop owner.
| Repayment of loan | $390 000 |
| Sale of property | 390 000 |
| Interest received | 1 560 |
| Payment to employees | 78 000 |
| Receipts from customers | 273 000 |
| Expenses paid | 23 400 |
| Computer equipment purchase | 23 400 |
| GST paid | 780 |
| Payments to suppliers | 156 000 |
| Income taxes paid | 3 120 |
| Beginning cash balance | 7 800 |
A. Prepare a statement of cash flows using the direct method.
B. Outline some cash flow warning signals.
Question 2
Selected information for two companies competing in the catering industry is presented in the table below:
| Account Name | Lawson | Dawson |
| Current assets | $110,500 | $167,900 |
| Non-current assets | $250,000 | $299,000 |
| Current Liabilities | $58,600 | $23,500 |
| Non-current Liabilities | $89,700 | $145,000 |
| Equity | $212,200 | $298,400 |
| Profit | $75,000 | $53,000 |
Required:
A. Calculate the following ratios for Lawson and Dawson:
i. Current ratio.
ii. Return on Assets (ROA).
iii. Return on Equity (ROE).
B. From your calculations in part (A), explain which entity is in a more favourable position.
C. Discuss two limitations of ratio analysis as a fundamental analysis tool.
Question 3
King Sports owned by Tim Lane, sells sports equipment to schools and sporting clubs in Victoria. The following balances were reported in the Balance Sheet as at 30 June 2019.
| Account Name | Balance ($) |
| Cash at bank | 39 400 |
| Accounts receivable | 2 800 |
| Accounts payable | 1 200 |
| Capital – Tim Lane | 41 000 |
Transactions for July 2019 were as follows:
| July 2 | Received $2800 from accounts receivable |
| 3 | Paid $1000 of accounts payable |
| 4 | Paid rent for July $700 |
| 5 | Sent invoice to customer $5600 |
| 7 | Purchased office equipment for cash $2000 |
| 9 | Recorded cash sales $800 |
| 10 | Recorded credit sales $1500 |
| 14 | Purchased office supplies for cash $330 |
| 23 | Recorded cash sales $2000 |
| 31 | Cash drawing by Tim Lane $800 |
Required:
a. Prepare worksheet entries for the business transactions for the month ended 31 July 2019.
Question 4
King Sports owned by Tim Lane, sells sports equipment to schools and sporting clubs in Victoria. The following balances were reported in the Balance Sheet as at 30 June 2019;
| Account Name | Balance ($) |
| Cash at bank | 39 400 |
| Accounts receivable | 2 800 |
| Accounts payable | 1 200 |
| Capital – Tim Lane | 41 000 |
July transactions for 2019 were as follows:
| July 2 | Received $2800 from accounts receivable |
| 3 | Paid $1000 of accounts payable |
| 4 | Paid rent for July $700 |
| 5 | Sent invoice to customer $5600 |
| 7 | Purchased office equipment for cash $2000 |
| 9 | Recorded cash sales $800 |
| 10 | Recorded credit sales $1500 |
| 14 | Purchased office supplies for cash $330 |
| 23 | Recorded cash sales $2000 |
| 31 | Cash drawing by Tim Lane $800 |
Required:
a. Record Journal entries for the business transactions for the month ended 31 July 2019.
b. Record the transactions in the following ledger accounts for King Sports for the month ended 31 July 2019.
(i) Cash account.
(ii) Accounts receivable.
(iii) Office equipment.
(iv) Rent expense.
(v) Office supplies expense.
(vi) Drawings account.
(vii) Tim Lane’s capital account.
(viii) Sales revenue account.
c. Prepare a trial balance at 31 July 2019.
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