2023-24 Semester 2 Principles of Accounting II
Assignment 3 – Question Paper
All students are expected to observe UIC’s academic honesty policy. Specifically, you are expected to complete this assignment on your own without copying the work from other student(s) and without allowing other student(s) to copy your work. Plagiarized work will receive zero mark (Please refer to “Guidelines for Handling Academic Dishonesty” for details).
AI-assisted Tools are generally prohibited. Using ChatGPT or other AI tools for CA (if detected through AI Detection Tool) will lead to partial deduction of the mark and work resubmission.
To complete the assignment, students are required to have textbook readings or self-study. Students should not just rely on the PPT.
Due Date: 4:00pm on Friday, 10 May 2024.
Late submission will not be accepted, and therefore will not be marked.
Please follow the instructions below:
1. You must use Word file format to complete the assignment answers which are allowed for Turnitin and AI-assisted detection checks.
Submission in a format other than the above mentioned will NOT be accepted.
2. Answers should be supported by workings/ detailed calculations where appropriate.
3. Please submit a soft copy of your completed assignment to the drop-box on iSpace, AND hand in a hard copy of the completed assignment to the assistant instructor.
4. File naming rule: Please name your file in the format as “your section number + your name + your student number”.
5. Answer all TWO (2) questions. (Explanation/Description is not required for the journal entries)
6. Show the question number and sub-question number clearly.
Question 1 (20 marks)
The following are the financial statements of Rich Corporation:
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Rich Corporation
Statements of Financial Position
December 31
2023 2022
Assets:
Cash $ 40,890 $ 38,040
Accounts receivable 37,180 34,400
Merchandise inventory 73,125 61,710
Long-term Investments................... 55,900 56,400
Equipment........................................ 175,500 145,500
Accumulated depreciation............... (33,550) (31,200)
Total assets.................................... $349,045 $304,850
Liabilities:
Accounts payable............................ $75,000 $50,380
Income tax payable......................... 10,725 10,200
Bonds payable................................. 50,000 66,000
Total liabilities................................. $135,725 $126,580
Equity:
Share Capital.................................. 127,000 106,000
Share Premium............................... 13,000 9,000
Retained earnings............................ 73,320 63,270
Total equity.................................... $213,320 $178,270
Total liabilities and equity................. $349,045 $304,850
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Rich Corporation
Income Statement
For Year Ended December 31, 2023
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Sales.......................................................
Cost of goods sold..................................
Gross profit
Depreciation expense.............................
Other operating expenses......................
Interest expense.....................................
Other gains (losses):
Loss on sale of equipment..................
Profit before tax......................................
Income tax expense................................
Net profit.................................................
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$(29,400) (448,000)
(2,000)
(8,400)
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$1,240,000 (580,900)
659,100
(487,800) 171,300 (127,650)
$ 43,650
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Additional information:
(1) There was no gain or loss on the sales of the long-term investments, nor on the bonds retired. (2) Old equipment with an original cost of $37,550 was sold for $2,100 cash.
(3) New equipment was purchased for $67,550 cash.
(4) Cash dividends of $33,600 were paid. Management wishes to classify this under financing activities.
(5) Additional shares were issued for cash.
Required:
(a) Prepare a complete statement of cash flows for the year 2023, using indirect method. (14 marks)
(b) State the purpose for preparing the cash flow statement. (2 marks)
(c) Explain the value of separating cash flows into three sections and give an example of
information in each of the sections that may help the users to understand the cashflow activities of the company. (4 marks)
Question 2 (20 marks)
Samoa Ltd. has the following financial statements and additional information as at December 31, 2023.
Samoa Ltd.
Comparative Statements of Financial Position
December 31, 2023 and 2022
2023 2022
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Cash
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$105,800
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$65,000
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Accounts receivable, net
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70,000
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52,800
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Inventory
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107,000
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96,000
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Prepaid expenses
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4,200
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5,200
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Equipment
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130,000
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120,000
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Acc. Depreciation - Equip.
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(28,000)
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(10,000)
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Total assets
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$389,000
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$329,000
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Accounts payable
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$26,000
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$32,000
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Wages payable
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17,000
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16,000
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Income tax payable
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2,600
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3,400
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Notes payable (long term)
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60,000
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90,000
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Share capital
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200,000
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150,000
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Retained earnings
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83,400
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37,600
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Total liabilities & equity
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$389,000
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$329,000
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Samoa Ltd.
Income Statement
for the year ended December 31, 2023
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Sales
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$850,000
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Cost of goods sold
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512,500
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Gross profit
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$337,500
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Interest expense
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(58,600)
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General administrative and selling expenses
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(67,000)
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Gain on sale of equipment
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2,000
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Profit before tax
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$213,900
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Income tax expense
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(54,100)
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Net profit
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$159,800
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Additional information:
a. Cash dividends of $180,000 and $150,000 were declared and paid in 2022 and 2023 respectively.
b. Weighted-average number of ordinary shares outstanding was 50,000 shares throughout 2022 and 2023.
c. Year-end market prices of ordinary shares were $15 and $10 per share in 2022 and 2023 respectively.
Required:
Part A (14 marks)
Using the financial statements and additional information, compute the following ratios. Show all computations.
For 2023
1. Current ratio
2. Total asset turnover
3. Receivables turnover
4. Dividend yield
5. Price-earnings ratio
6. Times interest earned
7. Profit margin
8. Days’ sales uncollected
9. Return on ordinary shareholders' equity
10. Debt to equity ratio
For 2022
1. Current ratio
2. Dividend yield
3. Debt to equity ratio
Part B (6 marks)
In complete sentences, comment on your observation of the change of the debt-to-equity ratios between 2022 and 2023. Think carefully about the positive or negative effects on the company’s financial position and performance.
(Total 20 marks)