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Alpha Corporation hires a subject matter expert at a salary of Rs 5,000 per month including benefits. The subject matter expert is non-billable and is expected to help engineers with resolving their technical queries as well as assist them in development of new technology. The subject matter expert was hired on 1st of February and today is 1st of March of the same year. You have just paid him his salary. What accounts will this transaction impact? Answer :
Engineers cash account increases and company balance decreases . In terms of accounting head :
(DR) Salary account (L)
(CR) operating expense account ( Bank) (A) Bravo Corporation borrows Rs 1,000,000 on 1st Jan 2013 from a bank for corporate expenses. As per the terms of the agreement, Bravo Corporation will need to pay the bank $1,728,000 at the end of three years. Today is 1st of Jan 2014 and Bravo Corporation is preparing its Income Statement. What will be the value of Interest Expense that figures in the Income Statement? Answer :
As the accounting year would be 1st Jan – 31st dec 2013 and this being the first year ,and interest amount would be divided proportionally for 3 years hence income statement would be as follows . Baro Corporation.
Income statement (1st Jan to 31st Dec 2013) Interest expense 242666
Charlie Corporation is in the business of development of software and as a result most of its engineers use PCs provided by the company for their work. During the past year, it sold 2 old PCs and bought 3 new PCs for its engineers. Each old PC sold was Rs 1000 and each new PC was bought for Rs 2000. The PCs were sold for cash and were purchased for cash. Owing to this transaction, how much should Charlie Corporation’s Fixed Asset account change for this year? You may ignore depreciation. Answer :
The fixed asset account would change by 4000 .(As fixed asset would not incorporate the earning from asset ) The financial year has just ended for Delta Corporation and for the current financial year, Delta just announced that it would pay out a dividend of Rs 60,000 to its shareholders. Is this a transaction? If so, what are the accounts that will be used to capture this transaction? Answer : Yes it is transaction ,where in dividend is paid to shareholders reducing company profit and distributing the same to the shareholders . In terms of accounting entry :
(DR) dividend account
(CR) Bank Account .
Echo Corporation is into farming tractor-manufacturing business. At the end of year 1, their retained earnings are $250, and cash is $100. In year 2, ABC makes a net loss of $30. In year 3, ABC makes a net profit of $50 and also issues dividends of $25 to its shareholders. Due to these transactions, what will be the Retained Earnings on Echo’s Balance Sheet after Year 3? What will be cash after year 3? Answer :
Retained earning :250 balance at 1st year
(30) net loss Year 2
50 profit year 3
(25) dividend year 3
Total :245 $ is the retained earning after 3rd year . RE(retained earning) are earning kept by the company and not distributed to shareholders . RE is balance (250 + profit – loss –dividend )
Cash :100 balance at 1st year ???
(30) loss at 2 year
50 profit year 3
(25) dividend year 3
Total : 95 $ is the cash after 3rd year .
Cash balance after 3 year is 100
Foxtrot Corporation wants to setup a factory producing tires. The factory would be constructed in two years post which it will start production. Foxtrot takes a loan to part-fund the factory construction cost for 100 cr at 10% interest with interest payable yearly in cash. At the end of the first year, the company pays Rs 10 cr as interest to the bank. At this stage, from an accounting perspective, Foxtrot has to make a choice. It can either show the interest paid as an expense in the Income Statement for year 1, or it can add the interest paid to the book value of the factory. In the latter case, the book value of Foxtrot will be increased to Rs 110 cr that will now include Rs 10 cr as interest that the company paid to the bankers? Which of the two do you think is more consistent with the principles of accounting? Answer : As per GAAP ,the book value should be increased to Rs 110 cr as the factory is still to be constructed and cost of interest paid for constructing the factory adds to the overall cost of the factory.
The balance in the accumulated depreciation account of Golf Corporation as on April 1st 2011 was Rs 2,00,000 when the original cost of assets was Rs 10,00,000. The company charges 10% depreciation on a straight-line basis. One such asset costing Rs 5,00,000 (and having an accumulated depreciation of Rs 80,000) was sold for Rs 4,20,000 at the beginning of the year. What is the balance of the accumulated depreciation account on March 31st 2012? Opening Addition Closing opening addition closing 50000 10,00,000 (5,00,000) 500000 2,00,000 (80000) 170000 30,000 As the opening a/c was 10,00,000 and the asset costing 5,00,000 was sold the remaining balance would be 5,00,000 on which depreciation would be 50,000 (10% of 5,00,000) and hence the the balance in accumulated depreciation would be 170,000 .(200000-30000)