QUESTION: P repare financial statements

The following is the closing account balances as prepared for Sydney Company as at 30 June 2020 (for the 12 months beginning on 1 July 2019):

The following information is given which may give rise to year-end adjustments. The effect of these transactions is not reflected in the account balances above.

i. Depreciation on Property, Plant and Equipment is $45,000 per annum.

ii. The balance in Prepaid Rent relates to the 12-month period from 1 January 2020 to 31 December 2020.

iii. Insurance worth $18,000 was prepaid on 1 June 2020 for the period 1 June 2020 – 30 November 2020. No journal entry had been recorded for this purchase.

iv. On 30 June 2020, the directors declared a dividend of $5,000, which the shareholders authorised. The dividend is to be paid on 15 September 2020.

v. It is discovered that $10,000 cash received during the year and credited to sales are actually related to services to be delivered in July 2020.

vi. $5,000 of wages relating to June 2020 have not been paid and need to be accrued.

Part A

Prepare journal entries for the necessary end of period adjustments

Part B

Prepare an Income Statement for the year ended 30 June 2020

Part C

In the Balance Sheet as at 30 June 2020, what would be the closing balance of retained profits? Show all workings

QUESTION Financial Statement Analysis

You are required to indicate the effect of the transactions listed below on the ratio listed opposite it. For each transaction, state whether the ratio would increase, decrease, or have no effect. You are also required to provide a brief explanation for your answer.

Note:

· Treat each transaction independently.

· The current ratio for the period was 2.4.

· The debt-to-asset ratio was 0.67.

· The return on equity ratio was 4%.

· All other ratios were positive.

QUESTION Financial Statement Analysis

Drake Ltd manufactures and sells commercial kitchen equipment. The company is constantly profitable. Drake Ltd’s financial statement ratios are as follows:

For each of the following transactions or events, indicate the directional effect (increase, decrease, no change) on the Profit Margin, Current Ratio and Debt to Equity in the table below. Note that you must write either ‘increase’, ‘decrease’ or ‘no change’. A blank response will be marked as incorrect. Consider each transaction independently of all the other transactions.

a. Drake Ltd borrowed an additional $200,000 as short-term, 6-month loan from the bank. (3 marks)

b. Inventory costing $120,000, which was damaged in the company warehouse, was sold $30,000. (3 marks)

Record your answer in the table below.

Based on the above extracts from the financial statements of Retail Limited for the years ended 31 December 2020 and 2019, you are required to answer the following:

1. Drawing on any two p rofitability ratios, comment on the financial performance of the company (3 marks)

2. Drawing on any two relevant pieces of evidence from the balance sheet, explain whether the company’s l iquidity improved or worsened during year 2020 (3 marks)

3. Drawing on any two relevant ratios, explain whether the company’s s olvency

improved or worsened during the year (3 marks)

4. How much dividends were declared during 2020? (1 mark)

QUESTION Audit Independence Threats

Describe and explain what type of independence threat each of the following situation provides:

1. The client of an audit firm asked the audit partner to promote their shares for a stock exchange listing. (2 marks)

2. The husband of an auditor holds $23,000 worth of shares in the audit client. (2 marks)

3. The client manger engaging has a dominant personality and seeks to influence the decision making of junior staff. (2 marks)

4. Due to a recent audit controversy, the audit firm has lost several clients. This means AZ Bank represents 25% of the audit firm’s earnings. (2 marks)