Question

The following information relates to Brunswick Ltd.

1. At the beginning of the accounting period the company has a wages payable liability of $300 and at the reporting date a wages payable of $720. During the year
2. the wages expense shown in the income statement was $700.

2. At the beginning of the accounting period the company has property plant and equipment (PPE) with a carrying amount of $800. At the end of the accounting period, the carrying amount of the PPE is $2,400. During the year depreciation charged was $160, a revaluation surplus of $480 was recorded and PPE with a carrying amount of $120 was sold for $160.

3. At the beginning of the accounting period the company has retained earnings of $5,000 and at the end of the accounting period the balance of the retained earnings is $4,600. The reported profit for the year was $5,500.

4. Brunswick Ltd also provides you with the following information on its sale and collection of accounts receivable:

Sales for the year                                                                                    $35,000

Discounts provided to customers for early payment                 $900

Doubtful debts expense for the year                                                $500

Opening balance of accounts receivable                                        $8,200

Closing balance of accounts receivable                                           $6,400

Opening balance of the allowance for doubtful debts              $720

Closing balance of the allowance for doubtful debts                 $640

Required:

1. Calculate the cash paid for wages                                                      (2.5 marks)
2. Calculate the cash paid to purchase new PPE                               (2.5 marks)
3. Calculate the dividend paid                                                                  (2.5 marks)
4. Calculate cash collected from customers                                       (2.5 marks)

Answer 1

i.
Cash paid for wages = $280.

Explanation:

Wages payable at the beginning of the accounting period = $300
Wages payable on reporting date = $720
Wages expense in the income statement = $700

Cash paid for wages = Opening wages payable + Wages expense during the year - Closing wages = $300 + $700 - $720 = $280

ii)
Cash paid to purchase new PPE = $1,400

Explanation:

Property plant and equipment (PPE) carrying amount at the beginning = $800
Property plant and equipment (PPE) carrying amount at the end = $2,400
Depreciation charged during the year = $160
Revaluation surpuls = $480
Carrying amount of PPE sold = $120

Cash paid to purchase new PPE = Ending PPE - (Opening PPE + Revaluation surplus - Depreciation - PPE sold)
= $2,400 - ($800 + $480 - $160 - $120)
= $2,400 - $1000 = $1,400

iii)
Dividend paid = $5,900

Explanation:

Retained earnings at the beginning = $5,000
Retained earnings at the end = $4,600
Profit of the year = $5,500

Dividend paid = Opening Retained earnings + Profit - Ending retained earnings
= $5,000 + $5,500 - $4,600 = $5,900

(Profit is added to retained earnings and dividends are paid out of retained earnings)

iv.
Cash collected from customers = $35,320

Explanation:

Opening accounts receivable = $8,200
Closing accounts receivable = $6,400
Sales for the year = $35,000
Discount allowed = $900
Doubtful debts for the year = $500
Opening Allowance for doubtful debts = $720
Closing Allowance for doubtful debts = $640

Cash received from customers = Opening accounts receivable + (Sales - Discount allowed) + (Closing allowance for doubtful debts - Opening allowance for doubtful debts) - Doubtful debts during the year - Closing accounts receivable
= $8,200 + ($35,000 - $900) + ($640 - $720) - $500 - $6,400
= $35,320