Question

Plasma Learning is an e-learning business that specialises in providing online learning resources in accounting, economics, and marketing management. The adjusted trial balance of Plasma Learning as at 30 June 2019 as follows.

	Debit $	Credit $
Cash at Bank	18500
Accounts Receivable	7800
Office Supplies	900
Prepaid Rent	3000
Equipment	60000
Accumulated Depreciation - Equipment		300
Furniture	27000
Accumulated Depreciation - Furniture		450
Accounts Payable		22300
Salary Payable		1350
Interest Payable		150
Unearned Service Revenue		2400
Loan Payable		60000
Owner’s, Capital		10000
Owner’s, Drawings	1500
Service Revenue		29600
Rent Expense	2100
Salary Expense	4700
Supplies Expense	150
Depreciation Expense - Building	300
Depreciation Expense - Furniture	450
Interest Expense	150
	126550	126550

Required:

a)     Prepare Plasma Learning’s Income Statement for the year ended 30 June 2019. (8 Marks)

b)    Prepare Plasma Learning’s Statement of Changes in Equity for the year ended 30 June 2019. (4 Marks)

c)     Calculate Plasma Learning’s Profit Margin and Return on Assets ratios (the total assets at 30 June 2018 was $95000). (Show all calculations, Round off the answers to the nearest 2 decimal places). (2 Marks)

d)    (i) Calculate Plasma Learning’s Current ratio and the Debt-to-total assets ratio at 30 June 2019. (Show all calculations, Round off the answers to the nearest 2 decimal places). (2 Marks)

(ii) Discuss Plasma Learning’s liquidity and solvency positions at 30 June 2019 as compared to 2018 (the Current ratio was 1.85:1 and the Debt-to-total assets ratio was 53.87% at 30 June 2018). (4 Marks) (Total 20 Marks)

Answer 1

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Plasma Learning
Answer a
Income Statement	Amount $
Service Revenue	29,600.00
Less:
Rent Expense	2,100.00
Salaries Expense	4,700.00
Supplies Expense	150.00
Depreciation Expense - Building	300.00
Depreciation Expense - Furniture	450.00
Interest Expense	150.00
Net profit	21,750.00
Answer b
Statement of changes in equity	Amount $
Opening Balance	10,000.00
Add: Net Income	21,750.00
Less: Drawings	1,500.00
Closing Balance	30,250.00

Balance Sheet	Amount $	Amount $
Current Assets
Cash	18,500.00
Accounts Receivable	7,800.00
Office Supplies	900.00
Prepaid rent	3,000.00
Total Current Assets		30,200.00
Non Current Assets
Equipment	60,000.00
Accumulated Depreciation - Equipment	(300.00)	59,700.00
Furniture	27,000.00
Accumulated Depreciation - Furniture	(450.00)	26,550.00
Fixed Assets		86,250.00
Total Assets		116,450.00
Liabilities & Owner's Equity
Liabilities	Amount $	Amount $
Current Liabilities
Accounts Payable	22,300.00
Salary Payable	1,350.00
Interest Payable	150.00
Unearned Service Revenue	2,400.00
Current Liabilities		26,200.00
Non- Current Liabilities
Loan Payable	60,000.00
Non- Current Liabilities		60,000.00
Total Liabilities		86,200.00
Owner's Equity	30,250.00
Owner's Equity		30,250.00
Total Liabilities & Owner's Equity		116,450.00

Answer c		Note
Net profit	21,750.00	A
Service Revenue	29,600.00	B
Profit Margin	73.48%	C=A/B
Opening total assets	95,000.00	D
Closing total assets	116,450.00	E
Average total assets	105,725.00	F=(D+E)/2
Net profit	21,750.00	See A
Return on Assets	20.57%	G=A/F
Answer d i
Total Current Assets	30,200.00	H
Current Liabilities	26,200.00	I
Current ratio	1.15	J=H/I

Answer d i

Current ratio of previous year was 1.85:1 which is greater than currant year so the liquidity of the firm has worsened.

Answer d i
Total Liabilities	86,200.00	K
Total Assets	116,450.00	See E
Debt-to-total assets ratio	74.02%	L=K/E

Answer d ii

Debt-to-total assets ratio previous year was 53.87% which is lesser than currant year so the solvency of the firm has worsened.