Josie Black has started a domestic cleaning business Crystal View Cleaning (CVC). She started the business on 1st May 2013, it is now 30th June and she has asked for your assistance in preparing her financial statements. On 1st May Josie deposited $5,000 into a new bank account opened in the name of the business. The $5,000 consisted of a $2,400 interest free loan from her father and $2,600 of her own money. Josie rented some equipment from Barry's Equipment Hire. On 1st May, she signed a four-month rental agreement on cleaning equipment (vacuum cleaners and a floor polishing machine) and paid $400 for the four month rental period. On the same day Josie also purchased (for $3,000) an old van to be used exclusively for the business. She believes that the van has three years of useful life and then will have a resale value of $300. Josie has made a note in her diary whenever she has taken items from the business for her personal use. At 30th June she consults her diary and calculates that she has taken $950 cash and $20 worth of cleaning supplies during the period. The loan made by her father is to be repaid in twenty four equal repayments. Each repayment is made on the last business day of the calendar month. Normally all of the work done by CVC is performed on account but one domestic customer insisted in paying in cash at the time the work was done. The customer paid $120 and Josie decided that it was not worth producing an invoice for an amount which had already been received. All work done during the period has been invoiced. Invoices totalling $8,300 had been issued. At 30th June Josie's customers owe her $900. Her diary records list payments for supplies totalling $380, and at the end of the period she still has supplies that cost $60 on hand. She paid her employees $2,900, and still owes them $320 for their final week of work. During June Josie paid her mobile telephone bill of $280 from her personal bank account. She estimates that 60% of the calls made were for the business purposes. She also has an unpaid bill for $125 from Keen Maintenance for a repair made to her floor polishing machine. Required: (Ignore GST) a) Prepare the business Income Statement for the period. b) Prepare the Statement of Changes in Equity for the period. c) Prepare the classified Balance Sheet in account form at the end of the period. All calculations must be shown. Solutions provided without calculations will not receive marks.   Question 2 Mary is a student and also operates a part time business called Pens R Us. She sells imported marker pens to various retail office and stationery supply shops. Business commenced in May 2012. Mary conducts all of the business' operations (she works alone and has no employees). Mary purchases pens for 60c each and sells them for $2.50 each. These amounts have not changed since Jane started operations. At 1st July 2012 an amount of $1,500 appears as inventory in the trial balance. During the year ended 30th June 2013, Mary made the following purchases and sales. Date Purchases Sales (units) @60c (units) @$2.50 July 11 1,000 Aug 3 600 Sept 12 2,000 Sept 30 1,300 Dec 2 1,500 Dec 6 400 Feb 3 700 Mar 22 1,500 April 19 2,300 May 26 800 TOTAL 5,000 7,100 On 30th June 2013 (the end of the accounting period), Mary counted 370 pens remaining on hand. RESPONSES REQUIRED 1. Calculate the Gross Profit for the year ended 30th June 2013 under both the periodic and perpetual methods of inventory recording. (HINT: Since you are being asked to calculate under both methods in this question, you are given complete data in regard to inventory flow. Not all of this data would be available to you under one of the methods, therefore ensure that you only use the data that would normally be available to you under each of the two methods.) Provide a correctly formatted extract from Pens R Us income statement for each method. You must clearly show how you have calculated each amount shown on the statement extracts. Statements provided without calculations/explanations will receive no marks. 2. Of the two methods used in 1. Above, which method (if any): (i) Provides the higher Gross Profit figure? (ii) Provides the most information for control purposes, and how? (iii) Considering the circumstances, which inventory method would be the most appropriate for Mary's business? Explain why. All calculations must be shown. Solutions provided without calculations will not receive marks.   Question 3 Teagan Nowe set up a secretarial services business (TN Services) on 1 July 2012. Usually, Teagan collects $20 per hour for services provided on the completion of each day's work and pays for the maintenance of her computer equipment with cash. Teagan did an accounting subject at secondary school and so has kept her own accrual-based accounting records. At the end of the first year, Teagan produced the following unadjusted trial balance: TN Services Unadjusted Trial Balance As at 30th June 2013 Cash at Bank$2,550 Accounts Receivable40 Computer Equipment 3,000 Motor Vehicle 24,000 Teagan Nowe, Capital $19,000 Teagan Nowe, Drawings17,570 Income 38,400 Telephone Expense2,300 Supplies Expense4,840 Repairs & Maintenance2,560 Other Expenses540 The following adjustments were required at the year-end: • Supplies on hand at year-end, $230. • An account was received for repairs done to Teagan's computer equipment before year-end but not recorded, $270. All calculations must be shown. Solutions provided without calculations will not receive marks. Ignore the GST in your answers. Required: a)Prepare an income statement for the year ended 30th June 2013 using accrual accounting. b) Prepare an income statement for the year ended 30th June 2013 using cash accounting. c)Teagan was not sure whether she could use cash accounting rather than accrual accounting for her business records. From the information provided, decide whether Teagan should use accrual or cash accounting, and explain to her the reasons for your decision. All calculations must be shown. Solutions provided without calculations will not receive marks. Question 4 The following information has been extracted from the financial statements and notes of Everton Pty Ltd, consultant Required: 1. Calculate the following ratios for 2013: A. return on total assets B. return on ordinary equity 2. Calculate the following ratios for 2012 and 2013: A. profit margin B. debt ratio C. times interest earned 3. What do these ratios show in relation to the company's profitability and financial stability? (200 – 250 words maximum) 4. What are some of the limitations or shortcomings of ratio analysis? Give at least four different examples and provide two or three sentences explaining each example. All calculations must be shown. Solutions provided without calculations will not receive marks. Question 5 Vietnam Pty Ltd purchased a truck for cash for $52,000 plus 10% GST on January 1, 2010. At the time of purchase it was estimated that the useful life of the vehicle would be 100,000 kilometres and it was expected that it would travel that distance over four years. At the end of four years of useful life it was calculated that the truck could be sold for $12,000. The accounting period for Vietnam Pty Ltd is the financial year. The actual distance covered by the truck was as follows: Year ending 30 June: 2010 10,000 kilometres 2011 25,000 kilometres 2012 30,000 kilometres 2013 22,000 kilometres 2014 8,000 kilometres Required: A) Calculate depreciation for the years ending 30th June 2010 to 30 June 2014 using the units of production method. B) Prepare general journal entries to record the purchase of the truck and depreciation, using the straight-line method, for the period 1 January 2010 to 30 June 2012. C) Prepare an extract from the balance sheet for the vehicle as at 30 June 2012 using the straight-line method of depreciation. All calculations must be shown. Solutions provided without calculations will not receive marks.