ANSWER TO THE QUESTION NO.

1
(a)

General Journal
J1
Date Accounts Title and Explanation Ref Debit Credit

Jan-1 Cash 1,00,000

Capital 1,00,000
(As invested in the business)

Jan-2 Prepaid Rent 36,000

Cash 36,000
(As paid rent in advance)

Jan-3 Equipment 80,000

Cash 60,000
Notes Payable 20,000
(As purchased on cash and on notes
payable)

Jan-4 Office Supplies 17,600

Accounts Payable 17,600
(As purchased on account)

Jan-13 Cash 28,500

Service Revenue 28,500
(As provided service)

Jan-13 Accounts Payable 17,600

Cash 17,600
(As paid accounts payable)

Jan-14 Salaries and Wages expense 19,100

Cash 19,100
(As paid wages)

Jan-18 Cash 32,900

Account Receivable 21,200
Service Revenue 54,100
(As provided service on cash and on
account)

Date Accounts Title and Explanation Ref Debit Credit

Jan-23 Cash 15,300
Account Receivable 15,300
(As received money from customers)

Jan-25 Cash 4,000

Unearned Service Revenue 4,000
(As received payment in advance)

Jan-26 Office Supplies 5,200

Accounts Payable 5,200
(As purchased on account)

Jan-28 Utilities expense 19,000

Cash 19,000
(As paid water bill)

Jan-31 Advertising expense 5,000

Cash 5,000
(As paid for advertising)

Jan-31 Utilities expense 2,470

Accounts Payable 2,470
(As received electricity bill for January)

Jan-31 Utilities expense 1,494

Accounts Payable 1,494
(As received telephone bill)

Jan-31 Miscellaneous expense 3,470

Cash 3,470
(As paid during the month)

(b)
 General Ledger

Cash
Date Explanation Ref Debit Credit Balance

Jan-1 J1 1,00,000 1,00,000

Jan-2 J1 36,000 64,000
Jan-3 J1 60,000 4,000
Jan-13 J1 28,500 32,500
Jan-13 J1 17,600 14,900
Jan-14 J1 19,100 (4,200)
Jan-18 J1 32,900 28,700
Jan-23 J1 15,300 44,000
Jan-25 J1 4,000 48,000
Jan-28 J1 19,000 29,000
Jan-31 J1 5,000 24,000
Jan-31 J1 3,470 20,530
________
________

Capital
Date Explanation Ref Debit Credit Balance

Jan-1 J1 1,00,000 1,00,000

________
________

Prepaid Rent
Date Explanation Ref Debit Credit Balance

Jan-2 J1 36,000 36,000

_____
_____

Equipment
Date Explanation Ref Debit Credit Balance

Jan-3 J1 80,000 80,000

______
______

Notes Payable
Date Explanation Ref Debit Credit Balance

Jan-3 J1 20,000 20,000

______
______

Office Supplies
Date Explanation Ref Debit Credit Balance

Jan-4 J1 17,600 17,600

Jan-26 J1 5,200 22,800
______
______

Accounts Payable
Date Explanation Ref Debit Credit Balance

Jan-4 J1 17,600 17,600

Jan-13 J1 17,600 000
Jan-26 J1 5,200 5,200
Jan-31 J1 2,470 7,670
Jan-31 J1 1,494 9,164
______
______

Service Revenue
Date Explanation Ref Debit Credit Balance

Jan-13 J1 28,500 28,500

Jan-18 J1 54,100 82,600
______
______

Salary and Wages Expense

Date Explanation Ref Debit Credit Balance

Jan-14 J1 19,100 19,100

______
______

Unearned Service Revenue

Date Explanation Ref Debit Credit Balance

Jan-25 J1 4,000 4,000

_____
_____

Advertising Expense
Date Explanation Ref Debit Credit Balance

Jan-31 J1 5,000 5,000

_____
_____

Utilities Expense
Date Explanation Ref Debit Credit Balance

Jan-28 J1 19,000 19,000

Jan-31 J1 2,470 21,470
Jan-31 J1 1,494 22,964
______
______

Miscellaneous Expense
Date Explanation Ref Debit Credit Balance

Jan-31 J1 3,470 3,470

_____
_____

Accounts Receivable
Date Explanation Ref Debit Credit Balance

Jan-18 J1 21,200 21,200

Jan-23 J1 15,300 5,900
______
______

(c)
 Anna Car Repairing Shop
Trial Balance
January 31, 2018

Accounts Title Debit Credit

Cash $20,530

Accounts Receivable $5,900

Utilities Expense $22,964

Advertising Expense $5,000

Miscellaneous Expense $3,470

Prepaid Rent $36,000

Office Supplies $22,800

Salary and Wages Expense $19,100

Accounts Payable $9,164

Service Revenue $82,600

Unearned Service Revenue $4,000

Equipment $80,000

Notes Payable $20,000

Capital $1,00,000

$2,15,764 $2,15,764
_________ _________
_________ _________

(d) Anna Car Repairing Shop

 Income Statement
For the month ended January 31, 2018

Service Revenue:

Service Revenue $82,600

_______

Total service revenue $82,600

_______
Expenses:

Utilities expense $22,964

Advertising expense $5,000
Miscellaneous expense $3,470
Salary and wages expense $19,100
_______
Total expenses $50,534
_______
Net Income $32,066
_______
_______

Anna Car Repairing Shop

Balance Sheet
 March 31, 2018

Assets:
Current Assets:

Cash $20,530
Accounts Receivable $5,900
Prepaid Rent $36,000
Office Supplies $22,800
_______
Total current asset $85,230

Fixed Asset:

Equipment $80,000
________
Total Assets $1,65,230

Liabilities & Owner’s Equity:

Current Liabilities:
Accounts Payable $9,164
Unearned service revenue $4,000
Notes Payable $20,000
_______
Total current liabilities $33,164

Owner’s Equity:
Beginning capital $1,00,000
Add: Net Income $32,066
_________
Closing capital $1,32,066
__________
Total liabilities & owner’s equity $1,65,230
_________
_________

ANSWER TO QUESTION NO. 02

a) Cost Principle:

The cost principle is an accounting concept that requires the numbers on the financial
statements be based on actual expenses from business transactions incurred during the
period.
b) Economic Entity Assumption:

An assumption that requires that the activities of the entity be kept separate and distinct from
the activities of its owner and all other economic entities.
c) Monetary Unit Assumption:

An assumption stating that companies include in the accounting records only transaction data
that can be expressed in terms of money.
d) Going Concern:

An accounting principle that requires companies to be accounted for as if they will continue
operating into the future is known as going concern.
e) Periodicity:

Periodicity means that accountants will assume that a company's complex and ongoing
activities can be divided up and reported in annual, quarterly and monthly financial
statements.
f) Revenue Recognition Principle:

The revenue recognition principle is an accounting principle that requires revenue to be

recorded only when it is earned. It means that revenues or income should be recognized when
the services or products are provided to customers regardless of when the payment takes
place.
g) Matching Concept:

The matching concept represents the primary differences between accrual accounting and
cash basis accounting. "Matching" means that firms report revenues and the expenses that
brought them in the same period.
h) Accrual Basis of Accounting:

The accrual basis of accounting is a system of recognizing revenues and expenses when they
are incurred instead of focusing on when they are paid or collected.
i) Dual Aspect of Accounting:
 The dual aspect concept states that every business transaction requires recordation in two
different accounts. This concept is the basis of double entry accounting, which is required by
all accounting frameworks in order to produce reliable financial statements.

ANSWER TO THE QUESTION NO.3

(a)
Baker Corporation
 Cash Flow Statement
For the year ended December 31, 2015

Cash flows from operating activities:

Net income $1,06,000

Adjustments to reconcile net income to net cash

provided by operating activities:
Depreciation expense $30,000
Decrease in account receivable $30,000
Increase in inventory ($1,40,000)
Increase in accounts payable $70,000
Increase in notes payable $20,000
__________ ________

Net cash provided by operating activities $1,16,000

Cash flows from investing activities:

Purchase of equipment ($40,000)
__________
Net cash used by investing activities ($40,000)

Cash flows from financing activities:

Decrease in long term debt ($30,000)
Payment of cash dividend ($76,000)
________
Net cash used by financing activities ($1,06,000)
_________
Net decrease in cash during the year ($30,000)
Cash at beginning of the year $70,000
_________
Cash at end of the year $40,000
_________
_________

(b) Calculation of the following ratios:

Current assets
(i) Current ratio=
Current liabilities
 Cash + accounts receivable + inventory
=
Accounts payable + notes payable + accrued expenses

$40,000+$320,000+$460,000
=
$390,000+$110,000+$20,000

$820,000
=
$520,000

= 1.57:1

Significance: Measures a company’s ability to pay short term obligations or those due within
one year. It tells investors how a company can maximize the current assets to satisfy its current
debt and other payable.

Cash + short term investment + accounts receivable

(ii) Quick ratio=
Current liabilities

$40,000+$0+$320,000
=
$520,000

$360,000
=
$520,000

= 0.692:1

Significance: It’s important because it provides a conservative overview of the company’s

financial standing.

Net credit sales

(iii) Accounts receivable turnover=
Average accounts receivable
 $2,200,000
=
($350,000+$320,000)/2

$2,200,000
=
$335,000
= 6.567 times
Significance: It’s important because it measures how many times a business can collect its
average account receivable during the year.

Net income
(iv) Profit Margin =
Net sales
$106,000
=
$2,200,000

= 4.8%

Net sales
(v)Asset turnover =
Average total assets

$2,200,000
=
($1,110,000+$1,200,000)/2

$2,200,000
=
$1,155,000

=1.90 times

Net income
(vi)Return on asset=
 Average total assets

$106,000
=
$1,155,000

= 9.17%

Net income
(Vii)Return on common stock holder’s equity=
Average common stock holders’ Equity

$106,000
=
$100,000+$150,000+ { ($ 80,000+ $ 1,10,000)/2 }

$106,000
=
$100,000+$150,000+$95,000

$106,000
=
$345,000

= 30.72%

Debt
(viii) Debt to Asset=
Total asset

$320,000
=
$1,200,00

= 26.67%
(ix) Income before income taxes & interest expenses
Times interest earned ratio=
Interest expense

$180,000
=
$29,000

= 6.21 times