Question

The following information relates to Paris Cosmetics. Ltd. for the year 2017 (1/1/2017).

Cash…………………………………….       €1,686

Short term investments………………...        1,277

Accounts Payable……………………….      7,840

Accounts Receivable……………………      2,670

Inventory……………………………….       5,638

Intangible Assets……………………….       2,694            

Current borrowings……………………..          500

Non-current borrowings………………...      1,683

Property Plant and Equipment…………        23,316

Share Capital-Ordinary…………………      24,594

Retained Earnings………………………       ?

Instructions: Prepare the journal entries for each of the transactions.

1. Paid mortgages of €686, €252 of which was interest and the remainder of which was repayment of principal.(Hint: think about what kind of borrowing you are paying off. Next year, Paris Cosmetics expects to pay off another €356 in mortgage principal (you need to transfer this amount from Non-current borrowings to current borrowings).
2. Spent €872 in advertising costs, 372 on account and the remainder paid in cash.
3. Received €420 for make-overs and make-up jobs at Paris Fashion week. €410 has been received in cash and the remainder is on account.
4. Paid €32 in health insurance benefits for employees (Insurance Expenses).
5. Bought €10,800 in ingredients to make cosmetics on account (Ingredients Expense)
6. Sold €15,486 in cosmetics, of which €10,236 has been collected. The rest is on account.
7. Paid €9,238 to various suppliers of ingredients for cosmetics to cover accounts payable.
8. Paid €2,400 in wages.
9. Paid $500 in utilities.
10. Declared and paid a cash dividend of €900.
11. Used €10,200 in ingredients.
12. Received €6900 in payments from customers as payment on account.

     Adjust the accounts using the beginning balances.

13. Prepare the income statement for 12/31/2017. Remember to calculate cost of goods sold and gross profit as well as net income. Assume all expenses are part of COGS.
14. Construct a Statement of Financial Position for Paris Cosmetics (order is very important) for 12/31/2017.
15. Calculate Expenses as % of Sales, Current Ratio, Quick Ratio, Net Working Capital, ROE, Debt-to-Equity.

Answer 1

Ans: Paris Cosmetics Pvt. Ltd.

1) Journal Entries

Particulars	Debit (€)	Credit (€)
Current Borrowings A/c Dr. Interest A/c Dr. To Cash A/c ( Being payment of mortgage )	434 252	686
Non-Current Borrowings A/c - Dr. To Current Borrowings A/c ( Being mortgage payment to made in next year is transferred to current borrowings)	356	356
Advertisement Expense A/c Dr. To Cash A/c To Account Payable A/c ( Being Advertisement expenses incurred)	872	500 372
Cash A/c Dr. Account Receivable A/c Dr. To Sales A/c ( Being sales revenue from fashion week recorded)	410 10	420
Insurance expense A/c Dr. To Cash A/c ( Being Insurance expense on the life of the employees paid)	32	32
Inventory A/c Dr. To Cash A/c   ( Being Inventory purchased)	10,800	10,800
Cash A/c Dr. Account Receivable A/c To Sales A/c ( Being sales revenue form sales of cosmetics)	10,236 5,250	15,486
Account payable A/c Dr. To Cash A/c ( Being payment to suppliers of Cosmetics)	9238	9238
Wages A/c Dr. To Cash A/c ( Being Wages paid to the employees)	2,400	2,400
Utilities Expense A/c Dr. To Cash A/c (being utilities expense paid)	500	500
Dividend A/c Dr. To Cash A/c ( Being dividend declared and paid)	900	900
Inventory A/c Dr. To Ingredient expense  A/c ( Being inventory used in manufacturing of goods)	10,200	10,200
Cash A/c Dr. To Account Receivable A/c ( Being amount received form customers)	6,900	6,900
Retained Earnings A/c Dr. To Dividend A/c (Being Dividend Declare)	900	900

2) Adjusting Ledger

		Cash
Particulars	Debit (€)	Particulars	Credit (€)
Opening Balance	1686	Current Borrowings	434
Sales	410	Interest	252
Sales	10,236	Advertisement Expense	500
Account Receivables	6900	Insurance Expense	32
		Account Payables	9238
		Wages	2400
		Utilities expense	500
		Dividend	900
		Closing Balance	4976
	19232		19232
	Advertisement Expense
Particulars	Debit (€)	Particulars	Credit (€)
Cash	500	Profit and Loss A/c	872
Account Payables	372
	872		872
	Retained Earnings
Particulars	Debit (€)	Particulars	Credit (€)
Closing Balance	3414	Opening Balance	2664
		Income	750
	3414		3414
	Wages
Particulars	Debit (€)	Particulars	Credit (€)
Cash	2400	Profit and Loss A/c	2400
	2400		2400

	Account Payables
Particulars	Debit (€)	Particulars	Credit (€)
Cash	9238	Opening Balance	7840
Closing Balance	9774	Advertisement Expense	372
		Inventory	10800
	19012		19012
	Non-Current Borrowings
Particulars	Debit (€)	Particulars	Credit (€)
Current Borrowings	356	Opening Balance	1683
Closing Balance	1327
	1683		1683
	Interest
Particulars	Debit (€)	Particulars	Credit (€)
Cash	252	Profit and Loss A/c	252
	252		252
Ingredient Expense
Debit (€)	Particulars	Credit (€)
10,200	Profit and Loss A/c	10,200
10,200		10,200

	Account Receivables
Particulars	Debit (€)	Particulars	Credit (€)
Opening Balance	2670	Cash	6900
Sales	10	Closing Balance	1030
Sales	5250
	7930		7930
	Current Borrowings
Particulars	Debit (€)	Particulars	Credit (€)
Cash	434	Opening Balance	500
Closing Balance	422	Non-Current Borrowings	356
	856		856
	Sales
Particulars	Debit (€)	Particulars	Credit (€)
Profit and Loss A/c	15906	Cash	410
		Account Receivables	10
		Cash	10,236
		Account Receivables	5250
	15906		15906
	Dividend
Particulars	Debit (€)	Particulars	Credit (€)
Cash	900	Retained Earnings	900
	900		900

	Inventory
Particulars	Debit (€)	Particulars	Credit (€)
Opening Balance	5638	Ingredient Expense	10,200
Account Payables	10800	Closing Balance	6,238
	16438		16,438
	Utilities expense
Particulars	Debit (€)	Particulars	Credit (€)
Cash	500	Profit and Loss A/c	500
	500		500
	Insurance Expense
Particulars	Debit (€)	Particulars	Credit (€)
Cash	32	Profit and Loss A/c	32
	32		32

Computation of Opening Retained earnings
Particulars	Debit (€)	Credit (€)
Cash	1686
Account Payables		7840
Account Receivables	2670
Non-Current Borrowings		1683
Current Borrowings		500
Short Term Investment	1277
Intangible Assets	2694
Inventory	5638
Property, Plant & Equipment	23316
Share capital Ordinary		24594
Retained Earning		2664
	37281	37281

3)

Income Statement Profit & loss A/c
Particulars		Amount (€)
Sales		15906
Less
Cost of goods Sold
Ingredient Expense	10200
Wages	2400
Interest	252
Insurance Expense	32
Utilities expense	500
Advertisement Expense	872
		14256
Gross Profit		1650
Dividend Expense		900
Net Income		750

4)  

Fianancial Statement
Particulars		Amount (€)
Equity and Liability
Equity share capital		24594
Retained Earnings		3414
Non-Current Borrowings		1327
Current Liabilities
Account Payables		9774
Current Borrowings		422
Total		39531
Assets
Fixed Assets
Intangible Assets	2694
Property, Plant & Equipment	23316
		26010
Current Assets
Short Term Investment	1277
Inventory	6,238
Cash	4976
Account Receivables	1030
		13521
Total		39531