Question

1.Accounting transactions and financial statements (40 marks) Bloom Field is a small business selling variety of orchids and roses. The balance sheet at the end of December 2019 is shown below.

Bloom Field is a small business selling variety of orchids and roses. The balance sheet at the end of December 2019 is shown below.

Bloom Field – Balance Sheet as at 31 December, 2019

Assets		Liabilities & Owner’s Equity
Current Assets:		Current Liabilities:
Cash	$38,000	Accounts Payable	$12,100
Accounts Receivable	$14,000
Inventory	$15,000
Non-current Assets:		Non-current Liabilities:
Computers – Cost	$6,000	Bank Loan	$20,000
Less Accumulated Depreciation	($1,900)
Computers – Net	$4,100	Owner’s Equity:
		Share Capital	$30,000
		Retained Earnings	$9,000
Total Assets	$71,100	Total Liab’ & OE	$ 71,100

(a) Transactions for January 2020 are given below ignore taxes). Prepare journal entries to account for these transactions, and indicate the impact on the Cash Flow Statement if there is any. The first transaction is done for you in the template as an example. + (24 marks) (i) 1 January, collected $5,000 cash from accounts receivable. (ii) 1 January, prepaid rent $18,000 for the next 12 months. (iii) 1 January, sold one computer for $400 cash. The disposed computer has a cost of $2,000 and accumulated depreciation of $1,400. (iv) 2 January, borrowed $25,000 from the bank, to be repaid 3 years later. (v) 5 January, paid $6,000 of accounts payable, which related to inventory purchased in 2019. (vi) 7 January, sold $8,000 worth of inventory for $15,000 cash. # (vii) 8 January, purchased $12,000 of inventory on credit, which is payable in February 2020.- (viii) 20 January, paid employee monthly salary of $2,000.- (ix) 22 January, a customer ordered some special orchids and paid a deposit of $500. The delivery of the order will take place in March 2020.- (x) 28 January, paid other expenses $700 including power, water, internet and phone, for the month. (xi) 29 January, sold $10,000 worth of inventory for $19,000 on credit, receivable in February 2020.- (xii) 31 January, the following adjustments needed to be recorded: Accrued interest expense $300 for the month of January. Depreciation expense $100 for the computers in January. Rental expense for the month of January.

Answer 1

Journal entries for the month of Jan 2020
Sl.No	Date	DR	CR	Dr $	Cr $	Note
i	1-Jan-20	Dr Cash		5,000		Cash flow from operating activities
	Cr Accounts Receivable		5,000
ii	1-Jan-20	Dr Prepaid Rent		18,000		Cash outflow for operating activities
	Cr Cash		18,000
iii	1-Jan-20	Dr Cash		400		Cash inflow from investment Activity
Dr Loss on sale		200
	Cr Computer		600
iv	2-Jan-20	Dr Cash		25,000		Cash flow from Financing Activity
	Cr Secured Loan		25,000
v	5-Jan-20	Dr Accounts Payable		6,000		Cash outflow for operating activities
	Cr Cash		6,000
vi	7-Jan-20	Dr Cash		15,000		Cash flow from operating activities
	Cr Sales		15,000
vii	8-Jan-20	Dr Purchases		12,000		No cash flow from with this transaction
	Cr Accounts Payable		12,000
viii	20-Jan-20	Dr Salaries		2,000		Cash outflow for operating activities
	Cr Cash		2,000
ix	22-Jan-20	Dr Cash		500		Cash inflow from operating activity
	Cr Customer		500
x	28-Jan-20	Dr Other expenses		700		Cash out flow for operating activity
	Cr Cash		700
xi	29-Jan-20	Dr Accounts Receivable		19,000		No cash flow from with this transaction
	Cr Sales		19,000
xii	31-Jan-20	Dr Interest		300		No cash flow from with this transaction
	Cr Interest Payable		300
xiii	31-Jan-20	Dr Depreciation		100		No cash flow from with this transaction
	Cr Computer		100
xiv	31-Jan-20	Dr Rent		1500		Cash outflow for operating activities
	Cr Prepaid rent		1500

Income Statement for the month end Jan 2020
Particulars	Amount	Amount
Revenue (19000+15000)		34,000
Less: Cost of Goods Sold
Cogs= (15000+12000-9000)		18,000
Gross Profit		16,000
Less: Operating Expenses & Losses
Rent for Jan	1,500
Salaries	2,000
Loss on sale of Asset	200
Other Expenses	700
Depreciation	100
Accrued Interest	300	(4,800)
Net Income		11,200

Statement of Cash flows for the month ending Jan 2020
Particulars	Amount	Amount
Operating cash flow
Receipts from Customers (5000+15000+5000		20,500
Payment to Inventory Supplies		(6,000)
Payment for Rent		(18,000)
Payment for Salaries & others (2000+700)		(2,700)
Total operating Cash flows -A		(6,200)
Investing Cash flow
Sale of computer		400
Total Investing cash flows - B		400
Financing Cash flows
Loan Borrowed		25,000
Total Financing cash flows -C		25,000
Net Change in cash held during the January (A+B+C)		19,200
Add: Opening cash Balance on 31st Dec 2019		38,000
Closing Balance on 31st Jan 2020		57,200

Balance Sheet as on 31st January 2020
Assets	Amount	Amount	Liabilities & Owner equity	Amount	Amount
Current Assets			Current Liabilities
Cash		57200	Accounts Payable	12100
A/R	14000			-6000
	-5000			12000	18100
	19000		Advance from customer		500
		28000
Inventory	15000		Non-Current Liabilities
	12000		Bank Loan	20000
	-8000		Add New	25000
	-10000		Add Interest outstanding	300
		9000			45300
Prepaid rent		16500
Computer	6000		Owners Equity
Less: Sold	-2000		Share Capital	30000
Less: Dep	-600		Retained earnings
		3400	(9000+11200)	20200	50200
		114100			114100