BHMS2288 – Introduction to Accounting
Assignment 2
1. This assignment is due on 23:59 on 14 November 2020 (Sunday), please submit the
same via Moodle. Your assignment should be in PDF format.
2. Late submission will be subject to penalty of 20% deduction every hour.
3. Total marks: 100
Question 1 (22 marks)
Dr. Schekter, DVM, opened a veterinary clinic on May 1, current year. The business transactions
for May are shown as follows.
May 1 Dr. Schekter invested $960,000 cash in the business in exchange
for 6,000 shares of capital stock.
May 4 Land and a building were purchased for $600,000. Of this amount,
$168,000 applied to the land, and $432,000 to the building.
A cash payment of $240,000 was made at the time of the purchase,
and a note payable was issued for the remaining balance.
May 9 Medical instruments were purchased for $312,000 cash.
May 16 Office fixtures and equipment were purchased for $120,000.
Dr. Schekter paid $48,000 at the time of purchase and agreed
to pay the entire remaining balance in 15 days.
May 21 Office supplies expected to last several months were purchased
for $12,000 cash.
May 24 Dr. Schekter billed clients $5,280 for services rendered. Of this
amount, $4,560 was received in cash, and $720 was billed on
account (due in 30 days).
May 27 A $960 invoice was received for several radio advertisements aired
in May. The entire amount is due on June 5.
May 28 Received a $240 payment on the $720 account receivable recorded May 24.
May 31 Paid employees $6,720 for salaries earned in May.
Required:
Prepare journal entries for the above transactions. (22 marks)
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Question 2 (24 marks)
Florida Palms Country Club adjusts its accounts monthly. Club members pay their annual dues
in advance by January 4. The entire amount is initially credited to Unearned Membership Dues.
At the end of each month, an appropriate portion of this amount is credited to Membership Dues
Earned. Guests of the club normally pay green fees before being allowed on the course. The
amounts collected are credited to Green Fee Revenue at the time of receipt. Certain guests,
however, are billed for green fees at the end of the month. The following information is available
as a source for preparing adjusting entries at December 31.
1. Salaries earned by golf course employees that have not yet been recorded or paid amount to
$19,200.
2. The Tampa University golf team used Florida Palms for a tournament played on December
30 of the current year. At December 31, the $3,600 owed by the team for green fees had not
yet been recorded or billed.
3. Membership dues earned in December, for collections received in January, amount to
$212,000.
4. Depreciation of the country club’s golf carts is based on an estimated life of 15 years. The
carts had originally been purchased for $360,000. The straight-line method is used.
5. A 12-month bank loan in the amount of $90,000 had been obtained by the country club on
November 1. Interest is computed at an annual rate of 8 percent. The entire $90,000, plus all
of the interest accrued over the 12-month life of the loan, is due in full on October 31 of the
upcoming year. The necessary adjusting entry was made on November 30 to record the first
month of accrued interest expense. However, no adjustment has been made to record interest
expense accrued in December.
6. A one-year property insurance policy had been purchased on March 1. The entire premium of
$15,600 was initially recorded as Unexpired Insurance.
7. In December, Florida Palms Country Club entered into an agreement to host the annual
tournament of the Florida Seniors Golf Association. The country club expects to generate
green fees of $9,000 from this event.
8. Unrecorded Income Taxes Expense accrued in December amounts to $38,000. This amount
will not be paid until January 15.
Required:
Prepare the above adjusting entries. If no entry is required, write “no entry”. (24 marks)
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Question 3 (30 marks)
Green Lawns, Inc., performs adjusting entries every month, but closes its accounts only at yearend. The following is the company’s year-end adjusted trial balance dated December 31, 2016.
Cash $ 437,280
Accounts receivable 21,600
Supplies 1,440
Equipment 57,600
Accumulated depreciation: equipment $ 24,000
Accounts payable 7,200
Income taxes payable 16,800
Capital stock 120,000
Retained earnings 216,000
Dividends 9,600
Lawn care revenue earned 460,800
Salary expense 249,600
Supply expense 5,760
Advertising expense 1,440
Depreciation expense: equipment 4,800
Income taxes expense 55,680
$844,800 $844,800
Required:
1. Prepare the Balance Sheet for Green Lawns, Inc as at December 31, 2016. (12 marks)
2. Prepare all the closing entries. (12 marks)
3. Calculate the company’s retained earnings as at December 31, 2016. (4 marks)
4. Have the 2016 dividends already been paid to shareholders? Explain. (2 marks)
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Question 4 (24 marks)
A condensed balance sheet for Bradford Corporation prepared on 31 December 2019
appears as follows. Bradford manufactures fashion products.
Assets Liabilities & Stockholders’ Equity
Cash $ 105,000 Notes payable (due in
6 months) $ 40,000
Accounts receivable 145,000 Accounts payable 110,000
Inventory 270,000 Long-term liabilities 360,000
Prepaid expenses 60,000 Capital stock, $5 par 300,000
Plant & equipment (net) 570,000 Retained earnings 430,000
Other assets 90,000
Total $1,240,000 Total $1,240,000
During the year the company earned a gross profit of $1,116,000 on sales of $2,950,000
(25% are cash sales), with net income of $460,000.
Accounts receivable, inventory, capital stock and plant assets remained almost constant
in amount throughout the year, so year-end figures for these items may be used rather
than averages. Retained earnings as at 31 December 2018 were $140,000.
On 31 December 2019 Bradford’s shares are trading at $12 per share.
Required:
1. Compute the following (all answers should be expressed with 2 decimal places):
a. Current ratio.
b. Quick ratio.
c. PE ratio.
d. Debt ratio (to be expressed in %).
e. Accounts receivable turnover.
f. Inventory turnover.
g. Dividend yield (to be expressed in %).
h. Return on equity (to be expressed in %).
(20 marks)
2. Comment on Bradford’s PE ratio, suppose the average PE ratio for the fashion
industry is 3.5 times. (4 marks)