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    Accounting: Balance Sheets, Income Statements and Cash Flows

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    Question 1:
    On 1 January 2012, Rose Tremayne opens a bank account in the name of her new trading business, Rose Tremayne Trading (RTT). She puts £112,000 of her own money into the business bank account. The following is a summary of transactions during 2012:
    (1) RTT takes out a short-term bank loan of £45,000 cash.
    (2) RTT buys non-current assets at the start of January at a cost of £72,000 paying cash.
    (3) Buys inventory of £60,000, paying cash.
    (4) Inventory costing £48,000 is sold on credit for £72,000.
    (5) Purchases inventory on credit for £84,000.
    (6) Inventory costing £6,000 is sold for £9,000 cash.
    (7) RTT purchases a 12 month insurance policy on April 1 for £4,000 providing cover until March 31 2013.
    (8) RTT purchases two lots of land for £60,000 (ie £30,000 per lot). The purchase price of £60,000 is paid after RTT takes out a ten year loan of £34,000.
    (9) Sells one of the lots of land for £33,000 cash.
    (10) RTT pays rent of £15,000 for the first nine months of 2012 but owes rent of £5,000 on 31 December 2012.
    (11) Inventory costing £69 000 is sold for £103,000 cash.
    (12) Wages for the period amounting to £30,000 are paid in full.
    (13) RTT pays off £15,000 of its short term bank loan.
    (14) RTT pays total interest of £4,000 for the long-term bank loan for 2012.
    (15) Customers pay £30,000 of cash owing.
    (16) RTT pays its trade creditors £48,000.
    (17) The equipment purchased for £72,000 at the start of January has an expected useful life of four years and an expected scrap value of zero. Assume straight-line depreciation is to be charged on these assets.

    (a) Prepare a balance sheet for RTT as at 31st December 2012.

    (b) Prepare an income statement for RTT for 2012 and briefly comment on RTT's performance during 2012.

    (c) Prepare a cash flow statement for RTT for 2012.

    Question 2:
    Ballpark Concessions currently sells hot dogs. During a typical month, the stand reports an operating profit of $9,000 with Revenues of $50,000, fixed costs of $21,000, and variable costs of $0.64 per hot dog.

    Next year, the company plans to start selling nachos for $3 per unit. Nachos will have a variable cost of $0.72 and new equipment and personnel to produce nachos will increase monthly fixed costs by $8,808. Initial sales of nachos should total 5,000 units. Most of the nacho sales are anticipated to come from current hot dog purchasers, therefore, monthly sales of hot dogs are expected to decline to $20,000.

    (a) Determine the monthly contribution margin and variable costs before adding nachos.

    (b) Determine the monthly breakeven sales in units before adding nachos.

    (c) Determine the monthly breakeven quantities during the first year of nachos sales, assuming constant sales mix of 1 hotdog and 2 units of nachos.

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    Solution Summary

    This response provides guidelines on breaking even, creating a balance sheet, an income statement, and a statement of cash flows.