ACC1701: ACCOUNTING FOR DECISION MAKERS

SEMESTER 1 2023 / 2024

TUTORIAL 3 ANSWER SOLUTION

Analytical Cumulative Case – XBird Inc.

(Refer also to excel solution file on Canvas)

Part (1)

Unadjusted Trial Balance Adjusted Trial Balance

Debit Credit Debit Credit
Cash 158,300 157,340
Accounts Receivable 13,000 13,000
Prepaid Rent 9,000 0
Prepaid Insurance 800
Inventory 79,000 79,000
Property, Plant & Equipment (PPE) 85,000 85,000
Accumulated Depreciation 10,000 21,250
Accounts Payable 22,500 22,500
Unearned Revenue 0 12,000
Salaries Payable 0 1,200
Taxes Payable 0 1,050
Dividends Payable 0 1,500
Interest Payable 0 1,250
Long-term Debt 50,000 50,000
Share Capital 200,000 200,000
Retained Earnings 14,000 14,000
Dividends 0 1,500
Sales 235,000 223,000
Cost of Goods Sold 136,000 136,000
Rent Expense 8,000 17,000
Marketing Expense 3,725 3,725
Salaries Expense 30,900 32,100
Insurance Expense 0 160
General Admin Expense 3,700 3,700
Depreciation Expense 0 11,250
Interest Expense 4,875 6,125
Income Tax Expense 0 1,050

531,500 531,500 547,750 547,750

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Part (2)(i)

XBird Inc.
Statement of Profit & Loss
For the Year Ended 31 December 2023

Sales Revenue 223,000

Cost of Goods Sold (136,000)
Gross Profit 87,000
Rent Expense (17,000)
Marketing Expense (3,725)
Salaries Expense (32,100)
Insurance Expense (160)
General Admin Expense (3,700)
Depreciation Expense (11,250)
Operating Income 19,065
Interest Expense (6,125)
Profit Before Tax 12,940
Income Tax Expense (1,050)
Net Income 11,890

Part (2)(ii)

XBird Inc.
Statement of Changes in Equity
For the Year Ended 31 December 2023

Share Retained Total

Capital Earnings Equity
Beginning Balance $ 100,000 $ 14,000 $ 114,000
Shares Issuance $ 100,000 $ 100,000
Net Income $ 11,890 $ 11,890
Dividends $ (1,500) $ (1,500)
Ending Balance $ 200,000 $ 24,390 $ 224,390

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Part (2)(iii)

XBird Inc.
Statement of Financial Position
As at 31 December 2023

Assets
Current Assets:
Cash 157,340
Accounts Receivable 13,000
Prepaid Insurance 800
Inventory 79,000
Total Current Assets 250,140
Non-current Assets:
Property, Plant & Equipment (PPE) 85,000
Less: Accumulated Depreciation (21,250)
Total Non-current Assets 63,750
Total Assets 313,890

Liabilities
Current Liabilities:
Accounts Payable 22,500
Unearned Revenue 12,000
Salaries Payable 1,200
Taxes Payable 1,050
Dividends Payable 1,500
Total Current Liabilities 38,250
Non-current Liabilities:
Interest Payable 1,250
Long-term Debt 50,000
Total Non Current Liabilities 51,250
Total Liabilities 89,500
Equity
Share Capital 200,000
Retained Earnings 24,390
Total Equity 224,390
Total Liabilities & Equity 313,890

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Part (3)
Closing Entries @ 31 December 2023
Sales 223,000
Cost of Goods Sold 136,000
Rent Expense 17,000
Marketing Expense 3,725
Salaries Expense 32,100
Insurance Expense 160
General Admin Expense 3,700
Depreciation Expense 11,250
Interest Expense 6,125
Income Tax Expense 1,050
Retained Earnings 11,890

Retained Earnings 1,500

Dividends 1,500

Part (4)

Post Closing Trial Balance

TB Worksheet Debit Credit
Cash 157,340
Accounts Receivable 13,000
Prepaid Rent 0
Prepaid Insurance 800
Inventory 79,000
Property, Plant & Equipment (PPE) 85,000
Accumulated Depreciation 21,250
Accounts Payable 22,500
Unearned Revenue 12,000
Salaries Payable 1,200
Taxes Payable 1,050
Dividends Payable 1,500
Interest Payable 1,250
Long-term Debt 50,000
Share Capital 200,000
Retained Earnings 24,390
335,140 335,140

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Part (5) & Part (6)

(Per Adjusted TB) (Per Unadjusted TB)

Part (5) Part (6)
(i) Net Profit Margin 0.053 0.203
Net Income 11,890 47,800
Net Sales 223,000 235,000

(ii) Return on Assets 0.045 0.175

Net Income 11,890 47,800
Beginning Total Assets 211,000 211,000
Ending Total Assets 313,890 334,300
Average Total Assets 262,445 272,650

(iii) Debt Ratio 0.285 0.217

Total Liabilities 89,500 72,500
Total Assets 313,890 334,300

If XBird did not record the adjusting/correcting entries before preparing its financial statements,
it will report a net profit margin of 20.3%, whereas in reality it is only 5.3%. Similarly, the Return
on Assets shows 17.5% as compared to only 4.5%. This might mislead investors into thinking that
XBird financial performance is better than it actually is.

~ End of Tutorial Solution ~

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