$1,000 FIXeD $200 rá ncrease b r $300 t SUMLIN Ine. Balance Sheet December 31, 2
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$1,000 FIXeD $200 rá ncrease b r $300 t SUMLIN Ine. Balance Sheet December 31, 20x1 Cash Accounts receivable (net) Other current assets. Long-term assets 0x2 gre dition o 10 year $90 225 45.. $750+a5o 150 600 -$360 1000 Less: Accumulated depreciation Total assets.? …… 5960 Accounts payable Mortgage payabl. Common stock... Retained earnings. $180 360 $540 $200 220 420 Total liabilities and equities 5960 SUMLIN, Inc. Income Statement For the Year Ending December 31, 20X1 Revenues Expenses. CICo 480 $1,600 1,200 erable' 5oO Net Income.. Other information: a. Revenues for 20X2 are expected to increase by 20%. b. Fixed expenses will increase from $400 to $500: the remaining expenses will continue 580 to vary directly and proportionally with revenues. c. Accounts receivable at December 31, 20X2 are expected to increase by an amount equal to 10% of 20X2 revenue. d. Sumlin plans a fixed (long-term) asset addition on January 1, 20X2 with a cost of $250. All fixed (long-term) assets have a useful life of 10 years, are depreciated on a straight-line basis and have no anticipated salvage value e. Accounts payable at December 31, 20X2 are expected to decrease by an amount equal to 20% of total expenses.Explanation / Answer
Answer to Question Number 32.
In 20X1
Revenues = $1,600
Expenses = $1,200
The above expense is a mix of Fixed expense and Variable expense.
Fixed expense is $400 as mentioned in point b of the section "Other information".
Therefor, variable expense = Total Expense - Fixed Expense = $1,200 - $400 = $800
Variable expense percentage on Revenue = $800/$1,600 = 50%
In 20X2
Revenue = 20% more on $1600 i.e. $1,920
Variable Expense = 50% of Revenue = 50% of $1,920 = $960
Fixed Expense = $500 (from point b of the section "Other information")
Therefore, Net Income will be as below,
Revenue = $1920
Variable Expense = $960
Fixed Expense = $500
Hence, Net income = $460
Answer to Question Number 33.
New accounts receivable balance as at end of 31 December 20X2 = $225 + 10% of 20X2 revenue = $225 + 10% of $1,920 = $417
Value of Long term assets as at December 31, 20X2 which were already in balancesheet of 20X1 =
Original Value = $750
Accumulated Depreciation until 31st December 20X1 = $150
Since, the method of depreciatio is straight line and useful life is 10 years without any salvage value.
Thus, depreciation per year would be = $750/10 = $75
Hence the book value of long term assets as at 31 December 20X2 =
Original Value = $750
Accumulated depreciation until 31 Dec 20X1 = $150
Depreciation for the year 20X2 = %75
Therefore, final net book value as at 31 Dec 20X2 = $525
Net book value as at 31 December 20X2 of new long term assets which got acquired during the year 20X2:
Cost = $250
Depreciation for the year 20X2 = $250/10 = $25
Hence, net book value as at 31 Decmber 20X2 = $225
New Current Assets as at end of 31 December 20X2 = $60
New Cash Balance as at the end of 31 December 20X2 =
Opening balance = $90
Collection from sales (90% of sales) = $1,728
Sale from common stocks = $300
Payment for expenses (Fixed + variable) = -$1,460
Purchase of Assets = -$250
Reduction of accounts payable (20% of $1,460) = -$292
Mortgage payment = -$40
Closing cash balance = $76
Therefore, total assets as at 31 December 20X2 =
Cash = $76
Accounts Receivable = $417
Other current assets = $60
Long term assets = ($525 + $225) = $750
Hence, total assets = $1,303
Answer to Question Number 34.
Since common stock was sold during 20X2, and hence closing balance of common stock is NIL.
Retaied Earnings as at 31 December 20X1 = $220
Net Income for the year 20X2 = $460
Profit on sale of Common Stock = $100
Therefore, total Equities as at 31 December 20X2 will be = $780
Answer to Question Number 35.
Total cash receipts from customer during 20X2 will be 90% of the sales made during 20X2.
= $1,920 * 90%
= $1,728
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