Question

Question 3: (11 marks) Cuppa Beverage Ltd. has just completed its first year of operations. Presented below are its income statement and statement of financial position. No dividends were paid during the year. CUPPA BEVERAGE LTD. Income Statement Year Ended July 31, 2012 $ A 31,000 Sales Operating expenses Depreciation expense Profit before income tax expense Income tax Profit $ 1,000 D CUPPA BEVERAGE LTD. Balance Sheet Assets $ Cash Accounts receivable Inventory Prepaid rent Equipment Accumulated depreciation Total assets F 200 5,500 600 $13,000 _ G 11,000 $ H Liabilities and Shareholders' Equity Accounts payable Bank loan payable $5,500 $ 7,500 $9,300 Shareholders' equity Common shares (5,000 shares issued) Retained earnings Total shareholders' equity K Total liabilities and shareholders' equity $19,800 Required:Solve for the missing amounts. Hint: It is not always best to start at the beginning and do things in alphabetical order.

Answer 1

(A)

As, depreciation expenses = $2000

and, profit before income tax expenses = $1000 + $3000 = $4000

sales = profit before income tax expenses + depreciation expenses + operating expenses

= $4000 + $2000 + $31000 = $37000

(B)

As, Accumulated depreciation = $2000

depreciation expenses = $2000

(C)

As, profit = $3000

profit before income tax expenses = $1000 + $3000 = $4000

(D)

as, retained earnings = $3000

profit = $3000

(E)

Requirements could not be ascertained

(F)

as, total assets = $19800

cash = total assets - $200 + $5500 + $600 + $11000 = $2500

(G)

Accumulated depreciation = $13000 - $11000 = $2000

(H)

as, total assets = total liabilities and shareholders equity,

total assets = $19800

(I)

bank loan payable = $7500 - $5500 = $2000

(J)

as, Total shareholders equity = $12300

retained earnings = $12300 - $9300 = $3000

(K)

Total shareholders equity = $19800 - $7500 = $12300