Red Rider Sports Ltd Income Statement And Tong Manufacturing Depreciation Schedule

Problem 1: Income Statement for Red Rider Sports Ltd

Problem 1: Income Statement

The financial controller for Red Rider Sports Ltd was stranded in the Philippines because of a recent typhoon. Their new financial accountant had to prepare financial statements for the fiscal year ending 30 June 2014 for management.

Below is a “draft” of the income statement prepared by the financial accountant.

Red Rider Sports Ltd Income Statement

Sales Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper	2,550,500
Expenditures and Costs Cost of Goods Sold	1,020,200
Advertising Expense	127,000
Bank Service charges	2,200
Auto & Truck Expense	6,200
Salaries & Wages Expense	850,000
Credit Card Discount Expense	49,000
Depreciation Expense	10,000
Dividends Paid	25,000
Telephone Expense	7,200
Travel Expense	5,500
Utilities Expense	16,800
Office Expense	7,800
General Liability Insurance	14,200
Purchase Discounts	40,800
Rent Expense	60,000
Repairs & Maintenance	4,800
Supplies Expense	2,400
Sales Returns	76,000
Sales Discounts	100,500
Total Expenses and Costs	2,425,600
Profit from Operations	124,900

The individual amounts above are correct; however, some of the amounts are not reported correctly. The income statement was not acceptable per management and they sent the draft to you for editing.

Required:

a. Prepare an appropriate income statement for the year ending 30 June 2014. Include percentages for each line item based on gross sale.

b. Compare your income statement with the draft and explain the differences to management.

c. If Red Rider Sports Ltd credit card fee is normally 2.2% credit card sales, what were the dollar amounts of their (1) cash sales and (2) their credit card sales?

Problem 2. Depreciation

Tong Manufacturing Ltd. started in Jan 2011, and has a fiscal year end of 30 June. The new CFO of Tong Manufacturing needs an updated depreciation schedule following the format show below. The information is needed in this format to compare with old depreciation software and to input your data into the new software. The format and the list of depreciable assets are on the following page.

Your calculations will also be used as supporting schedules for the year-end financial audit beginning in July of 2014 for fiscal year ending 30 June 2014.

Tong Manufacturing Ltd purchased machine Model 502 on 1 October 2012. The machine was not ready for full production until 1 January 2013.

Information that may be needed for your depreciation calculations is as follows:

Machinery 502:
	Purchase Price			90,000
	Shipping in				7,500
	GST				9,000
	Set up Preparation			2,600
	Set up Costs				12,000
	Trial run costs			3,500
	Interest cost during set up			400
	Residual value			10,000
	Repair damage during installation			3,500

Estimated useful life:	8 years or	50,000	units
Units of production	Year: Jan-June 2013	3500	units
Units of production	2013-14	8500	units
Residual value:	$ 10,000

Machinery 501:
Estimated useful life:	8 years or	24,000	units
Units of production	2011	2,000	units
	2011-12	4,000	units
	2012-13	3,500	units
	2013-14	3,500
Residual value:	$ 3,000

Required:

a. Prepare a worksheet in good form showing the capitalised cost of Machine 502 and explanations for any amounts you did not use.

b. Prepare a supporting worksheet with your calculations for each asset on the depreciation schedule to show the CFO how your calculations were prepared. Show the depreciation calculations for each asset for each fiscal year. (You must show how you calculated the reclining balance rates.)

c. Create and complete the depreciation schedule with the numbers from your supporting worksheets.

Tong Manufacturing Ltd
Depreciation schedule for fiscal year 2013-2014
		Cost		Prior	Prior Year	Deprec.	Deprec	Current Yr
Asset Description	Date	Basis	Residual	Accum.	Book Value	Life Yrs	Method	Deprec.
			Value	Deprec.	Carry Amt	or unit		Expense

Building	1 Jan 2011	550,000	100,000	???	???	20	SL	???

Land	1 Jan 2011	190,000	???	???	???	???	???	???

5 desks	1 Jan 2011	7,500	–	???	???	20	SL	???

5 computers/monitors	1 Jan 2011	6,000	900	???	???	6	RB	???

1 computer server	1 Jul 2011	2,500	375	???	???	6	RB	???

Server Cabinet	1 Jul 2011	1,500	–	???	???	10	SL	???

Machinery 501	1 Jan 2011	45,000	3,000	???	???	24,000	UOP	???

3 desks	1 Jul 2012	4,800	–	???	???	20	SL	???

5 chairs	1 Jul 2012	1,250	–	???	???	10	SL	???

3 computers	1 Jul 2012	3,600	540	???	???	6	RB	???

Reception Desk	1 Jul 2012	4,500	–	???	???	10	SL	???

2012 Nissan delivery Van	1 Jul 2012	46,750	5,000	???	???	6	RL	???

Machinery 502	???	???	10,000	???	???	???	UOP	???

Totals		863,400	119,815	???	???			???
SL = straight line; RB = reducing balance; UOP = units of production

Problem 3. Loan Amortisation

WXYZ Ltd has purchased a 2014 Nissan delivery truck. The accounting department needs to record the monthly principal payments and interest expense. The fiscal year end for WXYZ Ltd is 30 June.

Information from the dealer’s sales ticket:

Base Price:			65,000
Rear Tow bar:		400
Heavy Duty Front bumper:		1,500
Company Name printed on the side		600
Navigation System & Stereo		935
Alarm System		235
GST			6,867
Total			75,537

	Months	60
	Interest rate:	5%	annually
	Interest calc:	monthly
	Monthly Payment	???
	Purchase date:	1 September 2014
	First Payment due:	1 October 2014
	Final Payment:	1 September 2019
	Fiscal year end:	30 June
	Down Paymen	$ 10,000
	Amount Financed	???

Required:

a. Calculate the amount needs to be capitalised?

b. Calculate the amount that needs to be financed?

c. Prepare the journal entry to record the purchase of the truck.

d. Create an amortisation schedule that shows each monthly payment. Include the principal and the interest portions of each payment and the ending balance of the loan after each payment. Also, include the amount of principal, interest, total payments for each fiscal year.

e. Create the monthly depreciation entry using reducing-balance method so your staff can record depreciation expense each month. Expected residual value of the truck is $7,000 and has an expected useful life is 8 years. Show your complete calculation and round to the nearest whole dollar.

Problem 1.

Part a

Red Rider Sports Limited
Income Statement for the Year Ended 30 June, 2014
Particulars	Amount	Percentage

Gross Sales	$25,50,500	100.00%
Sales Returns	-$76,000	-2.98%

	$24,74,500	97.02%

Cost of Goods Sold:
Cost of Goods Sold	$10,20,200	40.00%
Purchase Discounts	-$40,800	-1.60%
Salary & Wages Expense	$8,50,000	33.33%
Utilities Expense	$16,800	0.66%
	$18,46,200	72.39%

Gross Profit	$6,28,300	24.63%

General & Admin Expenses:
Rent	$60,000	2.35%
Auto & Truck Expense	$6,200	0.24%
Telephone Expense	$7,200	0.28%
Travel Expense	$5,500	0.22%
Office Expense	$7,800	0.31%
General Liability Insurance	$14,200	0.56%
Repair & Maintenance	$4,800	0.19%
Supplies Expense	$2,400	0.09%
Depreciation	$10,000	0.39%
	$1,18,100	4.63%

Selling & Distribution Expenses:
Advertising	$1,27,000	4.98%
Sales Discounts	$1,00,500	3.94%
	$2,27,500	8.92%

Finance expenses:
Bank Service Charges	$2,200	0.09%
Credit Card Discount	$49,000	1.92%
	$51,200	2.01%

Total Expenses	$3,96,800	15.56%

Net Profit	$2,31,500	9.08%

Dividend Paid	$25,000	0.98%

Retained Earnings	$2,06,500	8%

Part b

The net profit as per draft income statement is $124,900 whereas it is $231,500 as per correct income statement. The Junior Accountant has treated purchase returns and Dividend as expenses. Purchase return is required to be deducted from cost of goods sold and dividend is appropriation of income and not expense. Therefore, these items cannot be treated as expense. Moreover, the junior accountant has not classified expenses according to function. It is necessary for better understanding of the financial results of the company.

Part C

Credit Card Discount is	$49,000
Credit Card Fees	2.20%
Credit Card Sales (i)	$22,27,273
Total Sales	$24,74,500
Cash Sales (ii)	$2,47,227

Part a

Tong Manufacturing Ltd
Calculation of Capitalized Cost of Machine 502
Particulars	Amount	Remarks

Purchase Price	$90,000	Basic Purchase Price
Shipping	$7,500	Cost of Asset to bring its intended use
GST	$9,000	Part of Purchase Price
Setup Preparation	$2,600	Cost of Asset to bring its intended use
Setup Costs	$12,000	Cost of Asset to bring its intended use
Trial Run cost	$3,500	Cost of Asset to bring its intended use
Interest cost	$400	Cost of Asset to bring its intended use
Repairing	$0	not related to capitalization
Capitalized Cost	$1,25,000

Part B

Depreciation schedule for fiscal year 2010-2011
Asset Description	Date	Cost Basis	Residual Value	Prior Accum. Depreciation	Prior BookValue Carry Amount	Depreciable LifeYrs or Units	Depreciation Method	Current Year Depreciation Expense

Building	01-Jan-11	$5,50,000	$1,00,000	$0	$0	20	SL	$11,250.00
Land	01-Jan-11	$1,90,000	$0	$0	$0	0	0	$0.00
5desks	01-Jan-11	$7,500	–	$0	$0	20	SL	$187.50
5 computers/ monitors	01-Jan-11	$6,000	$900	$0	$0	6	RB	$813.00
Machinery 501	01-Jan-11	$45,000	$3,000	$0	$0	24,000	UOP	$3,500
Totals		$7,98,500	$1,03,900	$0	$0			$15,751

Depreciation schedule for fiscal year 2011-2012

Asset Description	Date	Cost Basis	Residual Value	Prior Accum. Depreciation	Prior BookValue Carry Amount	Depreciable LifeYrs or Units	Depreciation Method	Current Year Depreciation Expense

Building	01-Jan-11	$5,50,000	$1,00,000	$11,250	$5,38,750	20	SL	$22,500.00
Land	01-Jan-11	$1,90,000	$0	$0	$1,90,000	0	0	$0.00
5desks	01-Jan-11	$7,500	$0	$188	$7,313	20	SL	$375.00
5computers/ monitors	01-Jan-11	$6,000	$900	$813	$5,187	6	RB	$1,405.68
1computerserver	01-Jul-11	$2,500	$375	$0	$2,500	6	RB	$677.50
Server Cabinet	01-Jul-11	$1,500	$0	$0	$1,500	10	SL	$150.00
Machinery 501	01-Jan-11	$45,000	$3,000	$3,500	$41,500	24,000	UOP	$7,000
Totals		$8,02,500	$1,04,275	$15,751	$7,86,750			$32,108

Depreciation schedule for fiscal year 2012-2013

Asset Description	Date	Cost Basis	Residual Value	Prior Accum. Depreciation	Prior BookValue Carry Amount	Depreciable LifeYrs or Units	Depreciation Method	Current Year Depreciation Expense

Building	01-Jan-11	$5,50,000	$1,00,000	$33,750	$5,16,250	20	SL	$22,500.00
Land	01-Jan-11	$1,90,000	$0	$0	$1,90,000	0	0	$0.00
5desks	01-Jan-11	$7,500	$0	$563	$6,938	20	SL	$375.00
5computers/monitors	01-Jan-11	$6,000	$900	$2,219	$3,781	6	RB	$1,024.74
1computerserver	01-Jul-11	$2,500	$375	$678	$1,823	6	RB	$493.90
Server Cabinet	01-Jul-11	$1,500	$0	$150	$1,350	10	SL	$150.00
Machinery501	01-Jan-11	$45,000	$3,000	$10,500	$34,500	24,000	UOP	$6,125
3desks	01-Jul-12	$4,800	$0	$0	$4,800	20	SL	$240.00
5chairs	01-Jul-12	$1,250	$0	$0	$1,250	10	SL	$125.00
3computers	01-Jul-12	$3,600	$540	$0	$3,600	6	RB	$975.60
Reception Desk	01-Jul-12	$4,500	$0	$0	$4,500	10	SL	$450.00
2012 Nissan delivery Van	01-Jul-12	$46,750	$5,000	$0	$46,750	6	RL	$14,539.25
Machinery502	01-Jan-13	$1,25,000	$10,000	$0	$1,25,000	50000	UOP	$8,050
Totals		$9,88,400	$1,19,815	$47,859	$9,40,541			$55,048

Part C

Depreciation schedule for fiscal year 2013-2014

Asset Description	Date	Cost Basis	Residual Value	Prior Accum. Depreciation	Prior BookValue Carry Amount	Depreciable LifeYrs or Units	Depreciation Method	Current Year Depreciation Expense

Building	01-Jan-11	$5,50,000	$1,00,000	$56,250	$4,93,750	20	SL	$22,500.00
Land	01-Jan-11	$1,90,000	$0	$0	$1,90,000	0	0	$0.00
5desks	01-Jan-11	$7,500	$0	$938	$6,563	20	SL	$375.00
5computers/monitors	01-Jan-11	$6,000	$900	$3,243	$2,757	6	RB	$747.03
1computerserver	01-Jul-11	$2,500	$375	$1,171	$1,329	6	RB	$360.05
Server Cabinet	01-Jul-11	$1,500	$0	$300	$1,200	10	SL	$150.00
Machinery501	01-Jan-11	$45,000	$3,000	$16,625	$28,375	24,000	UOP	$6,125
3desks	01-Jul-12	$4,800	$0	$240	$4,560	20	SL	$240.00
5chairs	01-Jul-12	$1,250	$0	$125	$1,125	10	SL	$125.00
3computers	01-Jul-12	$3,600	$540	$976	$2,624	6	RB	$711.21
Reception Desk	01-Jul-12	$4,500	$0	$450	$4,050	10	SL	$450.00
2012 Nissan delivery Van	01-Jul-12	$46,750	$5,000	$14,539	$32,211	6	RL	$10,017.54
Machinery502	01-Jan-13	$1,25,000	$10,000	$8,050	$1,16,950	50000	UOP	$19,550
Totals		$9,88,400	$1,19,815	$1,02,907	$8,85,493			$61,351

Part a

calculation of capitalization amount

Particulars	Amount	Remarks

Base Price	$65,000	Purchase Price
Rear Toolbar	$400	Accessories – Part of Truck
Heavy Duty Front Bumper	$1,500	Accessories – Part of Truck
Company Name Plate	$0	not required
Navigation System	$935	Accessories – Part of Truck
Alarm System	$235	Accessories – Part of Truck
GST	$6,867	Tax
Capitalization Amount	$74,937

Part b

Calculation of Finance Amount

Total Costs	$75,537
Down Payment	$10,000
Finance Amount	$65,537

Part c

Delivery Truck A/c Dr	$74,937
Delivery Truck Maintenance A/c Dr	$600
To Accounts Payable		$75,537
(Being Delivery Truck Purchased)

Part d

Finance Amount	$65,537
Finance Months	60
Interest Per Month	0.42%
Monthly Installment	$1,237.00

Month	Opening Balance	Interest	Instalment Amount	Principal Repayment	Closing Balance
Oct-14	$65,537	$273	$1,237	$964	$64,573
Nov-14	$64,573	$269	$1,237	$968	$63,605
Dec-14	$63,605	$265	$1,237	$972	$62,633
Jan-15	$62,633	$261	$1,237	$976	$61,657
Feb-15	$61,657	$257	$1,237	$980	$60,677
Mar-15	$60,677	$253	$1,237	$984	$59,693
Apr-15	$59,693	$249	$1,237	$988	$58,705
May-15	$58,705	$245	$1,237	$992	$57,713
Jun-15	$57,713	$240	$1,237	$997	$56,716
F.Y. 2014-15		$2,312	$11,133	$8,821
Jul-15	$56,716	$236	$1,237	$1,001	$55,715
Aug-15	$55,715	$232	$1,237	$1,005	$54,710
Sep-15	$54,710	$228	$1,237	$1,009	$53,701
Oct-15	$53,701	$224	$1,237	$1,013	$52,688
Nov-15	$52,688	$220	$1,237	$1,017	$51,671
Dec-15	$51,671	$215	$1,237	$1,022	$50,649
Jan-16	$50,649	$211	$1,237	$1,026	$49,623
Feb-16	$49,623	$207	$1,237	$1,030	$48,593
Mar-16	$48,593	$202	$1,237	$1,035	$47,558
Apr-16	$47,558	$198	$1,237	$1,039	$46,519
May-16	$46,519	$194	$1,237	$1,043	$45,476
Jun-16	$45,476	$189	$1,237	$1,048	$44,428
F.Y. 2015-16		$2,556	$14,844	$12,288
Jul-16	$44,428	$185	$1,237	$1,052	$43,376
Aug-16	$43,376	$181	$1,237	$1,056	$42,320
Sep-16	$42,320	$176	$1,237	$1,061	$41,259
Oct-16	$41,259	$172	$1,237	$1,065	$40,194
Nov-16	$40,194	$167	$1,237	$1,070	$39,124
Dec-16	$39,124	$163	$1,237	$1,074	$38,050
Jan-17	$38,050	$159	$1,237	$1,078	$36,972
Feb-17	$36,972	$154	$1,237	$1,083	$35,889
Mar-17	$35,889	$150	$1,237	$1,087	$34,802
Apr-17	$34,802	$145	$1,237	$1,092	$33,710
May-17	$33,710	$140	$1,237	$1,097	$32,613
Jun-17	$32,613	$136	$1,237	$1,101	$31,512
F.Y. 2016-17		$1,928	$14,844	$12,916
Jul-17	$31,512	$131	$1,237	$1,106	$30,406
Aug-17	$30,406	$127	$1,237	$1,110	$29,296
Sep-17	$29,296	$122	$1,237	$1,115	$28,181
Oct-17	$28,181	$117	$1,237	$1,120	$27,061
Nov-17	$27,061	$113	$1,237	$1,124	$25,937
Dec-17	$25,937	$108	$1,237	$1,129	$24,808
Jan-18	$24,808	$103	$1,237	$1,134	$23,674
Feb-18	$23,674	$99	$1,237	$1,138	$22,536
Mar-18	$22,536	$94	$1,237	$1,143	$21,393
Apr-18	$21,393	$89	$1,237	$1,148	$20,245
May-18	$20,245	$84	$1,237	$1,153	$19,092
Jun-18	$19,092	$80	$1,237	$1,157	$17,935
F.Y. 2017-18		$1,267	$14,844	$13,577
Jul-18	$17,935	$75	$1,237	$1,162	$16,773
Aug-18	$16,773	$70	$1,237	$1,167	$15,606
Sep-18	$15,606	$65	$1,237	$1,172	$14,434
Oct-18	$14,434	$60	$1,237	$1,177	$13,257
Nov-18	$13,257	$55	$1,237	$1,182	$12,075
Dec-18	$12,075	$50	$1,237	$1,187	$10,888
Jan-19	$10,888	$45	$1,237	$1,192	$9,696
Feb-19	$9,696	$40	$1,237	$1,197	$8,499
Mar-19	$8,499	$35	$1,237	$1,202	$7,297
Apr-19	$7,297	$30	$1,237	$1,207	$6,090
May-19	$6,090	$25	$1,237	$1,212	$4,878
Jun-19	$4,878	$20	$1,237	$1,217	$3,661
F.Y. 2018-19		$570	$14,844	$14,274
Jul-19	$3,661	$15	$1,237	$1,222	$2,439
Aug-19	$2,439	$10	$1,237	$1,227	$1,212
Sep-19	$1,212	$5	$1,237	$1,212	$0
F.Y. 2019-20		$30	$3,711	$3,661
Grand Total		$8,663	$74,220	$65,537

Part e

Cost of Truck	$74,937
Residue Value	$7,000
Useful Life	8
Purchase Date	01-09-2014
Year End	Jun-30
Depreciation for FY 2014-15	$15,987
Depreciation for FY 2015-16	$15,091
Depreciation for FY 2016-17	$11,228
Depreciation for FY 2017-18	$8,354
Depreciation for FY 2018-19	$6,215
Depreciation for FY 2019-20	$4,624
Depreciation for FY 2020-21	$3,440
Depreciation for FY 2021-22	$2,560

Year	Particulars	Debit	Credit
2014-15	Depreciation Expense	$15,987
	To Accumulated Depreciation		$15,987
	(Being Depreciation Expense recorded)

2015-16	Depreciation Expense	$15,091
	To Accumulated Depreciation		$15,091
	(Being Depreciation Expense recorded)

2016-17	Depreciation Expense	$11,228
	To Accumulated Depreciation		$11,228
	(Being Depreciation Expense recorded)

2017-18	Depreciation Expense	$8,354
	To Accumulated Depreciation		$8,354
	(Being Depreciation Expense recorded)

2018-19	Depreciation Expense	$6,215
	To Accumulated Depreciation		$6,215
	(Being Depreciation Expense recorded)

2019-20	Depreciation Expense	$4,624
	To Accumulated Depreciation		$4,624
	(Being Depreciation Expense recorded)

2020-21	Depreciation Expense	$3,440
	To Accumulated Depreciation		$3,440
	(Being Depreciation Expense recorded)

2021-22	Depreciation Expense	$2,560
	To Accumulated Depreciation		$2,560
	(Being Depreciation Expense recorded)