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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