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    Alberto Ltd; PDP Statement of Cash flows; partnership profits

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    1. CONCEPTUAL FRAMEWORK

    Alberto Ltd is seeking your advice on how to account for the following transactions, in line with the conceptual framework and other relevant documents. Discuss and explain your recommended treatment of each of the situations below. Prepare any journal entries where necessary:

    A. CONCEPTUAL FRAMEWORK
    Alberto Ltd is seeking your advice on how to account for the following transactions, in line with the conceptual framework and other relevant documents. Discuss and explain your recommended treatment of each of the situations below. Prepare any journal entries where necessary:

    1. State the amount of revenue that should be recognised by Alberto Ltd in the year ended 31 December 2011 for each item below:
    a) Alberto Ltd's net credit sales for 2011 were $400000, 75% of which were collected in 2011. Past experience indicates that about 96% of all credit sales are eventually collected.
    b) Alberto Ltd received $100 000 cash from a customer in December 2011 as payment for special-purpose machinery which is to be manufactured and shipped to the customer in February 2012.
    c) Alberto Ltd started renting out its excess warehouse space on 1 October 2011, on which date it received $12000 cash from the tenant for 6 months rent in advance. Ignore GST.

    2. Alberto Ltd spends $10 000 per year to have its head office cleaned and its gardens maintained. In order to continue this maintenance, the company established a Provision for Maintenance account and classified this provision as a liability on the statement of financial Position/balance sheet

    3. After conducting an audit of the accounts of Alberto Ltd, you discover that the following transactions and events were recorded during the current year. Alberto Ltd uses the historical cost system.

    a) The company borrowed $500 000 from a bank at an interest rate of 10% to construct a new warehouse. At the completion of construction, the loan was repaid and the following entry was made:
    Bank Loan 500000
    Warehouse 50000
    Cash at Bank 550000
    b) A speed-control device was installed on each of the company's 8 delivery trucks at a cost of $300 each plus GST. The transaction was recorded as follows:
    Maintenance Expense 2400
    GST Outlays 240
    Cash at Bank 2640
    c) At the beginning of the current year, a new vehicle was purchased for $36000. The vehicle had an estimated useful life of 4 years. Depreciation expense for the year was recorded as follows in order to avoid reporting a loss:

    Depreciation Expense 2000
    Accumulated Depreciation 2000

    2. STATEMENT OF CASH FLOWS

    The financial statements of PDP Ltd appear below.
    PDP Ltd
    Comparative balance sheet
    as at 30 June 2010
    Assets 2009 2010
    Cash $ 13000 $ 23 000
    Accounts receivable 33 000 24 000
    Inventory 27 000 20 000
    Prepaid expenses 13 000 20 000
    Land 40 000 40 000
    Property, plant and equipment 225 000 200 000
    Less: Accumulated depreciation (67500) (50 000)
    Total assets $283500 $277 000
    Liabilities and Shareholders' Equity
    Accounts payable
    $ 18500 $ 9 000
    Accrued expenses payable 7 500 9 500
    Interest payable 1 500 1 000
    Income taxes payable 2 000 3 000
    Bonds payable 80 000 50 000
    Share capital 105 000 123 000
    Retained earnings 69 000 81 500
    Total liabilities and shareholders' equity $283500 $277 000
    PDP Ltd
    Income Statement
    For the Year Ended 30 June 2010
    Income
    Sales revenue $600 000
    Gain on sale of PPE assets 2 500 $602 500
    Less: Expenses
    Cost of goods sold 500 000
    Other expenses 67 500
    Interest expense 5 000
    Income tax expense 9 000 581 500
    Net profit $ 21 000

    Additional information:

    1. Property Plant and Equipment assets were sold at a sales price of $62500.

    2. Additional equipment was purchased at a cost of $60 000.
    3. All sales and purchases were on account.

    Required

    1) Prepare a cash flow statement for PDP Ltd for the year ended 30 June 2010 using the direct method. Show all workings

    2) Reconcile profit and net cash provided (used) by operating activities using the indirect method.

    3. PARTNERSHIPS

    At the end of the financial year ended 30 June 2010, the trial balance of Huey, Duewy and Louie is as shown below.

    HUEY, DUEWY AND LOUIE
    Trial Balance
    as at 30 June 2010
    Debit Credit
    Cash at bank $ 162 500
    Accounts receivable 248 620
    Inventory 178 460
    Equipment 1 430 800
    Accumulated Depreciation - Equipment $ 62 600
    Goodwill 360 000
    Accounts payable 345 780
    Advance, Louie (due for payment 31 May 2011) 320 000
    Capital, 30 June 2009
    Huey 160 000
    Duewy 320 000
    Louie 640 000
    Drawings
    Huey 60 000
    Duewy 60 000
    Louie 20 000
    Profit and Loss Summary 272 000
    $ 2 520 380 $ 2 520 380

    Additional information
    1) Louie made his advance in the previous financial year

    2) Huey and Duewy needed to pay off the Beagle Boys and withdrew $12 000 on 30 September 2009, $8 000 on 31 December 2009, $5 000 on 31 March 2010 and the rest on 30 June 2010.
    3) Louie made his drawings on 30 June 2010

    4) The partnership agreement contains the following provisions in relation to the allocation of profits:

    1. A salary of $92,000 per year for Huey and $56,000 per year for Duewy

    2. Interest of 6% p.a. on capital contributed at the start of the financial year
    3. Interest on advances and drawings at 8% per annum

    4. The agreement does not specify profit sharing ratios

    Required

    1) State which method (1 or 2) the partners use and how you determined this.

    2) Prepare a table showing your calculations for the distribution of profits taking into account the above details.

    3) Prepare the following T-Accounts for the year ended 30 June 2010; Profit Distribution, Capital Accounts for each partner and the Cash at Bank account.

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    https://brainmass.com/business/statement-of-cash-flows/alberto-ltd-pdp-statement-cash-flows-partnership-profits-339652

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    Solution Summary

    PDP statements of cash flows for partnership profits are examined for Alberto Ltd.

    $2.19

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