Question

ACTIVITY A.- The company TRESX is dedicated to the manufacture and installation of artificial turf. Its main business is to install artificial turf surfaces in public facilities. On 31-12-N they receive the following balance sheet: ASSETS LIABILITIES AND EQUITY Machinery 40,000 Capital 5,000 Construction 200,000 Reserves 12,000 Software 10,000 Profits year N 6,000 Clients 3,000 Long-term bank debt 202,000 Checking account 4,000 Short-term bank debt 11,000 Providers 21,000 TOTAL ASSETS 257,000 TOTAL P AND PN 257,000 Machinery, buildings and software are listed at their book value, i.e. at their acquisition value minus accumulated depreciation. The customer account lists outstanding payments to the company by two municipalities for the installation of two artificial turf football fields. The long-term and short-term bank debts are covered by the same loan agreement, with a yearly interest of 6%. The vendor account represents the outstanding payment of the company to the vendor for the plastic material that TRESX uses to manufacture the turf rolls. The student has to do the accounting for the operations of the company in year N+1 and prepare the final balance sheet as at 31-12-N+1 and the income statement for year N+1. The students must decide the operations to be undertaken by the company on the year N+1, fulfilling the following requirements: 1- TRESX will collect the customer's credit shown on the balance sheet during the first quarter 2- TRESX will pay the outstanding debt with the supplier during the first quarter 3- TRESX will pay the short-term bank debt and the loan interest at the end of year N+1 4- TRESX will buy a new machine during the year N+1 5- TRESX will purchase plastic material from its usual supplier in year N+1 but will not pay the full amount, and the outstanding amount will be paid during the year N+2. 6- TRESX will install three artificial turf surfaces in public facilities during the year N+1, but it will not receive the full payment then and the outsdanding debt will be settled during the year N+2. 7- TRESX will pay the rent for the offices at the beginning of the year N+1 8- TRESX will pay the payroll of its employees, electricity, water and gas supplies and insurance premiums for the year N+1 9- TRESX will depreciate all its non-current assets on 31-12-N+1 10- If the result for year N+1 is positive, the company will have to pay a 25% income tax.

DO the following documents: 1- Journal of the Year N+1 2- General Ledger of the Year N+1 3- Balance sheet at 31-12-N+1 4- Profit and loss account for year N+1

Answer 1

Step 1

First Student have to prepare balance Sheet as on 31 December N.

Balance Sheet as on 31 December N will be as under

Sources of Funds

1. Capital    5,000

2. Reserves 12,000

3. Long Term Debts 202,000

4. Profit    6,000

5. Short Term Bank Debts    11,000

6. Providers 21,000

Total Liabilities    257,000

Assets

1. Machinery 40,000

2. Construction    200,000

3. Soft ware 10,000

4. Clients 3,000

5. Checking Account 4,000

Total Assets 257,000

Step 2

Journal Entries

   Dr Cr

1. Bank Account    3,000

   To Clients Account    3,000

(On realization of customers credit.)

2. Providers Account 21,000

   To Bank Account 21,000

( On payment to suppliers)

3. Short Term Bank Debt Account 11,000

   Interest on Loan Account 12,780

To Bank Account 23,780   

4.Machinery Account 40,000

To Bank Account 40,000

( On purchase of new Machinery. It is presumed that cost of new machinery is the same as an existing cost)

5. Purchase Account    xxxxx

To Bank Account xxxx

( On purchase of plastic material. Cost has not been given, hence amount has not been shown in the solution )

6. Clients Account yyyy

   Construction Account yyyy

(on construction of artificial turf. It is presumed that the artificial turf were constructed from construction account. Amount has not been provided, hence shown as yyyy)

7. Rent Account    aaaa

Bank Account    aaaa

(on payment of rent. Amount has not been provided in the problem)

8. Salary, wages gas, electricity etc.account    bbbb

Bank Account    bbbb

( On payment of payroll of employees, gas, electricity, insurance etc. Amount not indicated in the given problem Hence shown as such)

9. Depreciation Account    cccc

Software Account    cccc1

Machinery Account    cccc2,

(On depreciation of all non-current assets. Rate of depreciation not indicated in the given problem. Hence shown as such.)

Step 3

Balance Sheet could not be prepared in the absence of all the payments as most of payments are not provided in the given problem. Profit and Loss account could also not be prepared.