Trinhs nail supplies comparative income statements

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TRINH’S NAIL SUPPLIES Comparative Income Statements for the year ended 30 June 2016 2017 Sales Cost of sales $400 000 350 000 $ 500 000 458 000 GROSS PROFIT Interest income Loss on sale of fixtures 50 000 1 000 42 000 2 000 800 51 000 43 200 Office supplies used Other expenses 10 000 29 000 11 000 29 000 39 000 42 000 PROFIT $ 12 000 $ 3 200
TRINH’S NAIL SUPPLIES Comparative Statements of Financial Position as at 30 June 2016 2017 ASSETS Cash at bank Accounts receivable Inventory Office supplies Freehold property Fixtures Accumulated depreciation – fixtures Investments $ 4 400 42 000 80 000 2 000 60 000 40 000 (16 000) 6 000 $60 000 40 000 5 000 80 000 46 000 (20 200) 16 000 $218 400 $226 800 LIABILITIES AND EQUITY Bank overdraft Accounts payable Trinh, Capital $ 26 000 192 400 $ 4 000 40 000 182 800 $218 400 $226 800 Required A. Prepare the statement of cash flows for Trinh’s Nail Supplies for the year ended 30 June 2017, using the direct method. B. Comment on the cash flow position of the entity as shown in the statement of cash flows.
Purchase of property and equipment (30 200) Purchase of investments (10 000) Interest received** 2 000 Net cash used in investing activities (37000) Cash flows from financing activities: Drawings (12 800) Net cash used in financing activities (12 800) Net increase (decrease) in cash and cash equivalents (8 400) Cash and cash equivalents at beginning of year 4 400 Cash and cash equivalents at end of year*** $(4 000) **Interest income is included under investing activities as it is argued that it is earned as a result of an investing activity. ***Bank overdraft is part of the entity’s cash management function. Workings: Cash receipts from customers Accounts Receivable Balance b/d 42 000 Cash from customers 482 000 Sales 500 000 Balance c/d 60 000 542 000 542 000 Cash paid to suppliers
Cash payments for purchases Inventory Balance b/d 80 000 Cost of Goods sold 458 000 Purchases 418 000 Balance c/d 40 000 498 000 498 000 Accounts Payable Cash paid 404 000 Balance b/d 26 000 Balance c/d 40 000 Purchases 418 000 444 000 444 000 Office Supplies Balance b/d 2 000 Office supplies used 11 000 Cash 14 000 Balance c/d 5 000 16 000 16 000 Accumulated Depreciation – Fixtures Depreciation of fixtures sold 2200 Balance b/d 16 000 Balance c/d 20 200 Depreciation for current period 6400 22 400 22 400 Cash paid to suppliers and employees = $404 000 (inventory) + $14 000 (office supplies) + $22 600 (other expenses)* = $440 600
*Other expenses = $29 000 – $6400 (fixture depreciation) = $22 600 Purchase of property and equipment Fixtures Balance b/d 40 000 Write-down 2 200 Purchase 10 200 Carrying amount of fixtures sold 2 000 Balance c/d 46 000 50 200 50 200 Purchase of property and equipment = $10 200 (fixtures) + $20 000 (freehold property) = $30 200

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