FA习题

The following information relates to Skyte Ltd.

SKYTE LTD.

Statement of Financial Position

as at December 31

20X6 Goodwill € 135,000 Property, plant & equipment 790,000 Accumulated depreciation, property, plant & equipment (355,000) Prepaid Insurance 24,000 Inventories 220,000 Accounts receivable 415,000 Cash 20,000 € 1,249,00

Accumulated profits 271,000 Capital stock 480,000 Bonds payable 400,000 Discount on bonds payable (27,000) Unearned revenue 0 Income taxes payable 15,000 Accounts payable 110,000 € 1,249,000

SKYTE LTD.

Statement of Comprehensive Income for the year ending December 31, 20X6

Sales

Gain on sale of equipment

Cost of goods sold Depreciation expense

Goodwill impairment expense Tax expense

Insurance expense Interest expense Other expenses

Loss from hurricane damage (net of insurance proceeds)

Profit

20X5 € 150,000 800,000 (350,000) 22,000 230,000 400,000 15,000 € 1,267,000 250,000 380,000 400,000 (30,000) 50,000 42,000 175,000 € 1,267,000 € 3,100,000 10,000 3,110,000 2,300,000 60,000 15,000 18,000 25,000 27,000 594,000 30,000 3,069,000 € 41,000 Additional information:

a. The company sold equipment with a cost of €50,000 and accumulated depreciation of €35,000 for €25,000.

b. Two company vehicles with a cost of €60,000 and accumulated depreciation of €20,000 were destroyed in a hurricane. The company received €10,000 from its insurance company with respect to this loss.

c. The company purchased plant and equipment for €100,000 by issuing ordinary shares.

Required

Prepare a statement of cash flows for Skyte Ltd. for the year ending December 31, 20X6, using the direct method of presenting cash flows from operating activities. In addition, prepare any note(s) to the financial statements that may be required.

SKYTE LTD.

Statement of Cash Flows

for the year ending December 31, 20X6

Cash flows from operating activities Note Cash receipts from customers € 3,035,000 a. Cash paid to suppliers (2,355,000) b. Cash paid for insurance (27,000) c. Cash paid for other operating expenses (594,000) d. Cash generated from operations 59,000 Interest paid (24,000) e. Taxes paid (45,000) f. Net cash from operating activities (10,000)

Cash flows from investing activities Proceeds from sale of equipment 25,000 Proceeds from insurance claim 10,000 Net cash from investing activities 35,000

Cash flows from financing activities Dividends paid (20,000) g. Net cash from financing activities (20,000)

Net increase in cash and cash equivalents 5,000 Cash and cash equivalents January 1, 20X6 15,000 Cash and cash equivalents December 31, 20X6 € 20,000

Note A to the Financial Statements:

Plant and equipment costing €100,000 was acquired during the year by issuing ordinary shares.

a. €3,100,000 – €15,000 increase in accounts receivable – €50,000 decrease in unearned revenue = €3,035,000 b. €2,300,000 – €10,000 decrease in inventory + €65,000 decrease in accounts payable = €2,355,000 c. €25,000 + €2,000 increase in prepaid insurance = €27,000

d. There are no asset or liability accounts related to the expense; thus cash paid is equal to the expense amount e. €27,000 – €3,000 decrease in bond discount = €24,000 (depreciation of the bond discount resulted in an increase to interest expense thus this amount must be deducted from the expense to arrive at interest paid) f. €18,000 + €27,000 decrease in income tax payable = €45,000

g. Accumulated profits increased by €21,000 but profit equalled €41,000, therefore, dividends must have equalled €20,000. There is no dividends payable account; therefore, the dividends have been paid.

Question 3

Prestige Autos Ltd. is considering two alternative ways of pricing its cars to see if there is any difference in customer demand. The first alternative is to charge the

regular price and allow the customer to finance the purchase with a note payable at an interest rate equal to the market rate of interest. The second alternative is to charge a higher price, but to offer the customer 0% financing. Assume a particular type of automobile will be sold for €40,000, to be financed with a two year, 8% note payable. Interest would be compounded semi-annually and all of the interest would be payable in two years at the same time as the principal repayment. Alternatively, assume that the same automobile will be sold for €46,795 to be repaid in two years with 0% interest. Prestige’s year end is December 31.

Required

1. Prepare the journal entries Prestige would record if it sells an automobile on July 1, 20X5, for €40,000, to be financed by a two-year 8% note payable.

2. Prepare the journal entries required to be prepared by Prestige if an automobile is sold on July 1, 20X5 for €46,795, to be financed with a two-year interest free note. What do you notice about the interest revenue recorded by Prestige under each of the alternatives?

Requirement 1

Since the stated interest rate of 8% is equal to the market rate of interest, the note receivable will be recorded at its face value of €40,000. The entries that Prestige (the seller) would make are as follows: July 1, 20X5

Notes receivable ............................................................................ 40,000为什么不折

现？

Sales ........................................................................................ 40,000 To record sale of car (Note that there would also be a Cost of goods sold entry made by Prestige at the same time.)

December 31, 20X5

Interest receivable ......................................................................... Interest revenue ....................................................................... To record six months of interest revenue (€40,000  0.08  6/12)

June 30, 20X6

1,600

1,600

Interest receivable ......................................................................... 1,6 Interest revenue ....................................................................... To record six months of interest revenue, including compounding (€40,000 + €1,600)  0.08  6/12

上期的interest receivable 没有付现，所以是复利，仍要 0.08  6/12 December 31, 20X6

Interest receivable ......................................................................... 1,731 Interest revenue ....................................................................... To record six months of interest revenue, including compounding (€40,000 + €1,600 + €1,6)  0.08  6/12

June 30, 20X7

Interest receivable ......................................................................... 1,800 Interest revenue ....................................................................... To record six months of interest revenue, including compounding (€40,000 + €1,600 + €1,6 + €1,731)  0.08  6/12

June 30, 20X7

1,6

1,731

1,800

Cash ............................................................................................. 46,795 Note receivable ....................................................................... 40,000

1

Interest receivable ................................................................... 6,795 To record collection of the note receivable at maturity plus accumulated interest

1

€1,600 + €1,6 + €1,731 + €1,800

Requirement 2

If the automobile is sold with financing at 0%, the face value of the note must be discounted at the market rate of interest of 8%. Also, since there will be an interest accrual every six months, because of the December 31 year end, the note will be discounted over four periods (six months each) at an interest rate of 4% per period. Since there are no interest payments, the present value of the note receivable will be the present value of the single sum of €46,795 to be received in two years, compounded semi-annually (four periods). Therefore, Present value of note = €46,795  0.85481 = €40,000

1

The present value factor of a single amount to be received in four periods at 4% per period (Table 1, Appendix A, Lesson 5).

Note that the present value of this note is €40,000, the same amount as the note

carrying the market rate of interest of 8%. This makes sense since Prestige wants to be as well off under either alternative. Prestige chose a face value for the note with 0% that would make them as well off as the €40,000 note with 8% interest.

The entries for Prestige to record this note would be as follows: July 1, 20X5

Notes receivable ............................................................................ 46,795 Discount on notes receivable .................................................. 6,795 Sales ........................................................................................ 40,000 To record sale of car (Note that there would also be a Cost of goods sold entry made by Prestige at the same time.)

Notes receivable是46,795，sale是40,000，不要搞反了

以后各年数据不变，账户有interest receivable变为Discount on notes receivable December 31, 20X5

Discount on notes receivable ........................................................ 1,600 Interest revenue ....................................................................... To record six months of interest revenue at the effective interest rate of 4% (€46,795 – €6,795)  0.04

June 30, 20X6

Discount on notes receivable ........................................................ 1,6 Interest revenue ....................................................................... To record six months interest revenue at the effective interest rate of 4% [€46,795 – (€6,795 – €1,600)]  0.04

December 31, 20X6

Discount on notes receivable ........................................................ Interest revenue .......................................................................

1,731

1,600

1,6

1,731

To record six months of interest revenue at the effective interest rate of 4% [€46,795 – (€6,795 – €1,600 – €1,6)]  0.04

June 30, 20X7

Discount on notes receivable ........................................................ 1,800 Interest revenue ....................................................................... To record six months of interest revenue at the effective interest rate of 4% [€46,795 – (€6,795 – €1,600 – €1,6 – €1,731)]  0.04

June 30, 20X7

1,800

Cash............................................................................................... 46,795 Note receivable ....................................................................... 46,795 To record collection of the note receivable. The discount on the note receivable has been fully depreciated (€6,795 – €1,600 – €1,6 – €1,731 – €1,800) 付现时只有note receivable，没有interest revenue

Under each of the alternatives, the amount of interest revenue reported by Prestige is the same (€6,795). This is because Prestige chose alternatives that would leave it equally well off, but give the consumer two options. Remember that interest revenue, by definition, is always equal to the amount of money paid back less the amount initially loaned. In both cases, €46,795 of cash was received and the amount of the loan was €40,000.