Durabike Financial Management Depreciation Expense of Cars & Trucks Exercise

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Gevtre

Business Finance

Description

Attached is the Case Study. All the above questions have to be responded. In question 2 there has to be an explanation of the answer and in 3rd explaining the calculations.

Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer.

1. Calculate the depreciation expense of the cars and trucks of the company for the year 2019. Explain your answers as well as the differences between the two methods used by the company, and how the new method of depreciation decided by the accountant will affect the net income of the company for the year 2019, and over the total useful life of the assets.

2. Prepare the journal entries for the acquisition of the treasury stocks. Explain your answer.

3. Prepare a detailed income statement of the company showing the earning per share figure for each element of the Income statement. Explain your calculation. Very Important

4.Prepare a statement of cash flow for each one of the three sections (operating, investing and financing activities) for the year 2019 using the direct method and calculate the cash balance at 31stof December


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Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer. It assesses the following learning outcomes: • • • Critically understand the different components of the income statement. Knowing how to properly report treasury stocks operations Understand the differences between Income statement and statement of cash flow Business case (100 points) John Delivery services Ltd. Is a company dedicated to the delivery of merchandises purchased online The company started the year 2019 with a total fleet of 5 cars purchased on 1st of January 2018 for a total amount of € 100,000 and 3 trucks purchased on 1st of January 2017 for a total amount of 180,000€. All cars have an estimated useful life of 5 years whereas trucks have an estimated useful life of 6 years. All vehicles have a salvage value of 10% of its cost. The depreciation method is the straight line method. At 1st of January 2019 the accountant of the company realized that the useful life of the trucks should be lowered to 5 years in total taking into account the intensive use made of the vehicles. In order to be able to respond to the dramatic increase of job orders from the main clients, the company decides on 1st of March to acquire 10 new trucks for a total amount of € 500.000. The trucks will have a useful life of 5 years, and an estimated salvage value of 10%. The accountant of the company decided that regarding these last trucks purchased, the depreciation method should be the 200% declining balance method. To finance this acquisition, the company will issue 50.000 preferred stocks with €10 par value and 11% dividend rate. At 1st of January 2019, the owner’s equity section of the balance sheet of the company was composed as follows: • • • Common stock: 100,000 shares of 1 € par value common stock Additional paid in Capital Common stock: € 150.000 Retained earnings: €50.000 The 1st of April 2019, a tornado destroyed part of the company’s facilities, causing a total loss of € 57.000 On 1st of June 2019, John, a shareholder of the company decided to sale his 10% stake into the company. The company proceeded to the purchase of its own shares at a price per share of €10, a price 4 € above the market price. To finance this purchase the company took a 6% loan of €100,000. Interests are payable once a year every 1st of June During year 2019, the remaining expenses of the company were the following: Labor costs: • • • 26 drivers with an average salary of €2.100 / month. 12 of said drivers where hired on 1st of March 2019 , plus 30% social security taxes payable the 15 first days following each month 1 Manager with a gross fixed salary of €60.000 / year plus 30% social security taxes payable the 15 first days following each month, and a bonus of 5% of the net income of the previous year. 3 mechanics with an average salary of €1.850 / month Gasoline expense: € 350,000, all paid cash Insurance expense: €20,000 per month payable the first day of every quarter Depreciation expense (facilities): € 42.000 Miscellaneous: € 146,000 paid cash During the year 2019 the sales of the company amounted to €1,653,000. Consider that 9% of the company’s sales remain unpaid at 31st of December 2019 Income tax is payable each month of February at 25% rate on the net income of the previous year. The company began the year 2019 with a cash balance of €125,000 Net Income of year 2018 was €160,000 Prior to the stockholders meeting, John who owns 40% of the capital of the company comes to ask you about how the different issues commented above may affect the profitability of his investment into the company 1. Calculate the depreciation expense of the cars and trucks of the company for the year 2019. Explain your answers as well as the differences between the two methods used by the company, and how the new method of depreciation decided by the accountant will affect the net income of the company for the year 2019, and over the total useful life of the assets. (20points) 2. Prepare the journal entries for the acquisition of the treasury stocks. Explain your answer. (10 points) 3. Prepare a detailed income statement of the company showing the earning per share figure for each element of the Income statement. Explain your calculation. (40 points) 4.Prepare a statement of cash flow for each one of the three sections (operating, investing and financing activities) for the year 2019 using the direct method and calculate the cash balance at 31st of December (30 points) Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer. It assesses the following learning outcomes: • • • Critically understand the different components of the income statement. Knowing how to properly report treasury stocks operations Understand the differences between Income statement and statement of cash flow Business case (100 points) John Delivery services Ltd. Is a company dedicated to the delivery of merchandises purchased online The company started the year 2019 with a total fleet of 5 cars purchased on 1st of January 2018 for a total amount of € 100,000 and 3 trucks purchased on 1st of January 2017 for a total amount of 180,000€. All cars have an estimated useful life of 5 years whereas trucks have an estimated useful life of 6 years. All vehicles have a salvage value of 10% of its cost. The depreciation method is the straight line method. At 1st of January 2019 the accountant of the company realized that the useful life of the trucks should be lowered to 5 years in total taking into account the intensive use made of the vehicles. In order to be able to respond to the dramatic increase of job orders from the main clients, the company decides on 1st of March to acquire 10 new trucks for a total amount of € 500.000. The trucks will have a useful life of 5 years, and an estimated salvage value of 10%. The accountant of the company decided that regarding these last trucks purchased, the depreciation method should be the 200% declining balance method. To finance this acquisition, the company will issue 50.000 preferred stocks with €10 par value and 11% dividend rate. At 1st of January 2019, the owner’s equity section of the balance sheet of the company was composed as follows: • • • Common stock: 100,000 shares of 1 € par value common stock Additional paid in Capital Common stock: € 150.000 Retained earnings: €50.000 The 1st of April 2019, a tornado destroyed part of the company’s facilities, causing a total loss of € 57.000 On 1st of June 2019, John, a shareholder of the company decided to sale his 10% stake into the company. The company proceeded to the purchase of its own shares at a price per share of €10, a price 4 € above the market price. To finance this purchase the company took a 6% loan of €100,000. Interests are payable once a year every 1st of June During year 2019, the remaining expenses of the company were the following: Labor costs: • • • 26 drivers with an average salary of €2.100 / month. 12 of said drivers where hired on 1st of March 2019 , plus 30% social security taxes payable the 15 first days following each month 1 Manager with a gross fixed salary of €60.000 / year plus 30% social security taxes payable the 15 first days following each month, and a bonus of 5% of the net income of the previous year. 3 mechanics with an average salary of €1.850 / month Gasoline expense: € 350,000, all paid cash Insurance expense: €20,000 per month payable the first day of every quarter Depreciation expense (facilities): € 42.000 Miscellaneous: € 146,000 paid cash During the year 2019 the sales of the company amounted to €1,653,000. Consider that 9% of the company’s sales remain unpaid at 31st of December 2019 Income tax is payable each month of February at 25% rate on the net income of the previous year. The company began the year 2019 with a cash balance of €125,000 Net Income of year 2018 was €160,000 Prior to the stockholders meeting, John who owns 40% of the capital of the company comes to ask you about how the different issues commented above may affect the profitability of his investment into the company 1. Calculate the depreciation expense of the cars and trucks of the company for the year 2019. Explain your answers as well as the differences between the two methods used by the company, and how the new method of depreciation decided by the accountant will affect the net income of the company for the year 2019, and over the total useful life of the assets. (20points) 2. Prepare the journal entries for the acquisition of the treasury stocks. Explain your answer. (10 points) 3. Prepare a detailed income statement of the company showing the earning per share figure for each element of the Income statement. Explain your calculation. (40 points) 4.Prepare a statement of cash flow for each one of the three sections (operating, investing and financing activities) for the year 2019 using the direct method and calculate the cash balance at 31st of December (30 points) Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer. It assesses the following learning outcomes: • • • Critically understand the different components of the income statement. Knowing how to properly report treasury stocks operations Understand the differences between Income statement and statement of cash flow Business case (100 points) John Delivery services Ltd. Is a company dedicated to the delivery of merchandises purchased online The company started the year 2019 with a total fleet of 5 cars purchased on 1st of January 2018 for a total amount of € 100,000 and 3 trucks purchased on 1st of January 2017 for a total amount of 180,000€. All cars have an estimated useful life of 5 years whereas trucks have an estimated useful life of 6 years. All vehicles have a salvage value of 10% of its cost. The depreciation method is the straight line method. At 1st of January 2019 the accountant of the company realized that the useful life of the trucks should be lowered to 5 years in total taking into account the intensive use made of the vehicles. In order to be able to respond to the dramatic increase of job orders from the main clients, the company decides on 1st of March to acquire 10 new trucks for a total amount of € 500.000. The trucks will have a useful life of 5 years, and an estimated salvage value of 10%. The accountant of the company decided that regarding these last trucks purchased, the depreciation method should be the 200% declining balance method. To finance this acquisition, the company will issue 50.000 preferred stocks with €10 par value and 11% dividend rate. At 1st of January 2019, the owner’s equity section of the balance sheet of the company was composed as follows: • • • Common stock: 100,000 shares of 1 € par value common stock Additional paid in Capital Common stock: € 150.000 Retained earnings: €50.000 The 1st of April 2019, a tornado destroyed part of the company’s facilities, causing a total loss of € 57.000 On 1st of June 2019, John, a shareholder of the company decided to sale his 10% stake into the company. The company proceeded to the purchase of its own shares at a price per share of €10, a price 4 € above the market price. To finance this purchase the company took a 6% loan of €100,000. Interests are payable once a year every 1st of June During year 2019, the remaining expenses of the company were the following: Labor costs: • • • 26 drivers with an average salary of €2.100 / month. 12 of said drivers where hired on 1st of March 2019 , plus 30% social security taxes payable the 15 first days following each month 1 Manager with a gross fixed salary of €60.000 / year plus 30% social security taxes payable the 15 first days following each month, and a bonus of 5% of the net income of the previous year. 3 mechanics with an average salary of €1.850 / month Gasoline expense: € 350,000, all paid cash Insurance expense: €20,000 per month payable the first day of every quarter Depreciation expense (facilities): € 42.000 Miscellaneous: € 146,000 paid cash During the year 2019 the sales of the company amounted to €1,653,000. Consider that 9% of the company’s sales remain unpaid at 31st of December 2019 Income tax is payable each month of February at 25% rate on the net income of the previous year. The company began the year 2019 with a cash balance of €125,000 Net Income of year 2018 was €160,000 Prior to the stockholders meeting, John who owns 40% of the capital of the company comes to ask you about how the different issues commented above may affect the profitability of his investment into the company 1. Calculate the depreciation expense of the cars and trucks of the company for the year 2019. Explain your answers as well as the differences between the two methods used by the company, and how the new method of depreciation decided by the accountant will affect the net income of the company for the year 2019, and over the total useful life of the assets. (20points) 2. Prepare the journal entries for the acquisition of the treasury stocks. Explain your answer. (10 points) 3. Prepare a detailed income statement of the company showing the earning per share figure for each element of the Income statement. Explain your calculation. (40 points) 4.Prepare a statement of cash flow for each one of the three sections (operating, investing and financing activities) for the year 2019 using the direct method and calculate the cash balance at 31st of December (30 points)
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Explanation & Answer

Answer posted please confirmKindly go through the work and let me know if you need anything rectified

Delving in Financial statements

1

Student Name

Student Number

Financial Management Applied

Delving in Financial statements

1. Calculate depreciation expense of cars and trucks of the company for 2019. Explain your
answer and difference between 2 methods used by company and how the new method of
depreciation decided by accountant will affect net income for 2019 and over total useful life of
assets.
Depreciation for 2019
5 cars purchased 1st Jan 2018 for total amount €100000
Cost per car= £100000÷5=£20000
Cars have estimated life of 5 years
Salvage value=10% of cost i.e. 10÷100×£20000=£2000
Straight line depreciation = [(Cost of asset-salvage value)÷useful life of asset]
Depreciation per car [(20000-2000) ÷5]=3600
Depreciation/car=3600×5=18000………………………………Depreciation for 5 cars
Annual depreciation of the 5 cars for 2019=£18000
Since they were bought in 2018 they now have a total depreciation of 2 years i.e.
18000×2=36000 and they now have a value of
£100000-£36000=£64000……………..This is the figure that goes to balance sheet for net
book value of cars.

2

Delving in Financial statements

3 Trucks purchased 1st Jan 2017 for £180000
Cost per truck= 18000÷3=£60000
Depreciation for 2017 [(60000-6000)÷6=£9000×3=£27000
Depreciation for 2018: £27000
Salvage value 10% of £60000=£6000
Total depreciation for 2017 and 2018
£27000+£27000=£54000
Depreciation 2019-useful life was lowered to 5 years
[(60000-6000)÷5]=10800
1080...


Anonymous
Very useful material for studying!

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