Billy Bristol Maintenance - Assignment Example

May 17, Question 1.                       Bristol Maintenance     Income ment     June 30, 2014             Service Revenue $ 13,560.00         Expenses:     Depn Expense - Tools & Equip $ 100.00     Depn Expense - Van 100.00     Telephone Expense 189.00     Repair & Maintenance Expense -Equipment 300.00     Rent Expense - Equipment 200.00     Other Expenses 127.00     Subcontractor Expense 2,400.00     Supplies Expense 3,170.00 6,586.00     Net Income $ 6,974.00                           2.               Bristol Maintenance     Statement of Changes in Equity     As of July 30, 2014         Capital Beginning 0     Investments 4,089.00     Net Income 6,974.00     Withdrawal (2,040.00)     Capital End 9,023.00               3.                     Bristol Maintenance     Classified Balance Sheet     As of June 30, 2014             Balance sheet     Current Assets     Cash $ 3,943.00     Service Fee Receivable 1,500.00     Prepaid rent - equipment 1,000.00     Unused Supplies 450.00 $ 6,893.00         Noncurrent Assets     Tools & equipment $ 2,400.00     Accum Depn- Tools & Equip (100.00) $ 2,300.00     Van $ 2,000.00     Accum Depn - Van (100.00) 1,900.00     Total Assets $ 11,093.00         Liabilities     Accounts Payable $ 570.00     Loans Payable 1,500.00 $ 2,070.00         Equity     Billy, Capital $ 4,089.00     Net Income 6,974.00     Billy, Drawing (2,040.00) 9,023.00     Total Liabilities & Capital $ 11,093.00                     4. It is highly recommended that Billy Bristol continue with the new maintenance business. Within two months of operations, Bristol Maintenance is able to generate $6,974.00 net income (Ehrhardt, 2011). The current net income is expected to produce a trend. The trend is the increasing net income during future business operations. The net income is the “bottom line” or benchmark to determine whether to proceed or close up the business (Hoggett et al., 2012). When working as an employee, it is less probable that Billy Bristol will generate an increasing take home monthly salary. The human person can only do so much personally. On the other hand, the Bristol maintenance business can hire subcontractors. The subcontractors will perform the jobs of Bristol Maintenance Company’s maintenance jobs. As more subcontractors are hired by Bristol Maintenance Company, the company is able to generate higher customer demands. With higher customer demands, the company is able to generate higher revenues. With higher revenues, the Bristol Maintenance Company is able to increase its monthly net profits (Tatiana, 2012) With a small investment, Billy Bristol can generate high maintenance customer demands. One of the standard investments is cash. Billy invested $1,500 cash in the business. Just like other business endeavors, the company borrows money to fund its growing maintenance operations. Billy Bristol borrows money from a relative, $1,500, to ensure all customer maintenance demands are immediately met (Fraser, 2011). Question 2 1. There are two examples to support my answer. The profit is generated by deducting the total operating expenses from the gross profit. The gross profit is arrived at by deducting the cost of sales from the net sales. Since collections include revenues from prior or future accounting periods, cash collection is not the best basis for determining current period net income. Current period $10,000 collection for sales generated during the prior accounting period does not affect the current period net income (Berry, 2011). 2. Likewise, expense payments may include expenses for future accounting periods (prepaid portion of the total expense amount). Consequently, an adjusting entry is made to include only the current (accrued) portion of the total expense payments in the computing the current accounting period’s net income. A payment of $1,200 insurance expense 2 years should adjusted to only include $600 for the current period insurance expense (Powers et al., 2011). Question 3 1. Date Details Debit Credit June 30 Interest Receivable 600.00 Accrued Interest Income 600.00 To Record Interest 30 Stone, Drawing 840.00 Repair Expense 840.00 To record withdrawal 30 Commission Expense 2,000.00 CommissionExpense Payable 2,000.00 To record commission 30 Furniture & Fixture 1,300.00 Sundry Expense 1,300.00 To Record Expense Error 30 Rent Receivable 1,350.00 Rent Income 1,350.00 To Record Rent 30 Insurance Expense 60.00 Prepaid Insurance 60.00 To Record Accrued Insurance 30 Buildings 11,000.00 Capital Beginning 11,000.00 To Record Building 30 Depreciation Expense- Building 1,820.00 AccumulatedDepreciation-Building 1,820.00 To Record Depreciation 30 Depreciation Expense-Furniture & Fixture 2,360.00 Accumulated Depreciation-Furniture& Fixture 2,360.00 To record Depreciation 2.                         Net Income $ 63,500.00     Repair Expense $ 840     Commission Expense -2000     Sundry Expense 1300     Rent Income 1350     Insurance Expense -60     Depreciation Expense - building -1820 (390.00)     Net Income from Operations $ 63,110.00     Other Income & Expense     Interest Income 600.00     Net Income before tax $ 63,710.00                               Capital Beginning $     Repairs & Maintenance Expense -building $ -11000     Adjusted Capital Beginning                           Question 4 1. 2. Based on the above financial statement analysis ratios, Brisbane fared financially better than Perth. Brisbane’s 38 % Gross profit margin is higher than Perth’s 25 gross profit margin. A higher gross profit ratio indicates a better financial or operations performance. Brisbane’s 7 % profit margin is higher than Perth’s profit margin. A higher profit ratio indicates a better financial or operations output. Brisbane’s 3.65 times current ratio is higher than Perth’s 2.92 times current ratio. This clearly shows that Brisbane’s has more current assets allocated to pay for the currently maturing liabilities. Brisbane’s 11 % return on assets is better than Perth’s 10% return on assets (Black, 2009). This clearly shows that Brisbane is able to generate a higher net income ratio to net revenues, when compared to Perth’s similar ratio output. Brisbane’s 19 times Quick Ratio is better than Perth’s 11 times quick ratio (Hoggett et al., 2012). The quick ratio excludes the inventory from the current asset accounts. This ratio is a stricter financial statement ratio compared to the current ratio. Sometimes, inventories may include obsolete unsalable inventory items. Compared to Perth, Brisbane’s lower turnover over ratios cannot overturn the other ratios indicating Brisbane’s current accounting period’s better financial/ operating performance (Horngren, 2009). Perth’s 7.40 times receivables turnover ratio is higher than Brisbane’s 5.96 receivables turnover ratio. The lower turnover rate does not significantly affect Brisbane’s revenue generating marketing operations. Brisbane is able to generate a higher gross profit ratio than Perth. The receivables turnover ratio shows Perth is able to collect its receivables faster than Brisbane. The faster receivables turnover indicates the company is able to maximize its scarce cash assets more effectively. Compared to Perth, Brisbane’s lower inventory turnover ratio, 6.84 times, indicates that the Perth’s inventory turnover ratio, 15.37 times, shows Perth is able to turnover its inventory into to cash collections compared to Brisbane (Hoggettetal, 2012). References: Berry, L., 2011,. Financial Accounting Demystified. Sydney: McGrawHill Press. Black, G., 2009,. Introduction to Accounting and Finance. Sydney: Prentice Hall . Ehrhardt, B.,2011, Financial Management Theory and Practice. Sydney: Cengage Learning. Fraser, L., 2011, Understanding Financial Statements. Sydney: Prentice Hall . Hoggett et al., 2012, Acccounting. Brisbane: J. Wiley & Sons. Horngren, H., 2009, Accounting. Sydney: Prentice Hall. Powers et al., 2011, Principles of Accounting. Sydney: Cengage Learning. Tatiana, N., 2012, Accounting and Auditing Research. Sydney : Wiley & Sons. Read More