Question

Wisdom Learning is an e-learning business that specialises in providing online learning resources in accounting, economics, and marketing management. The adjusted trial balance of Wisdom Learning as at 30 June 2019 as follows.

Wisdom Learning is an e-learning business that specialises in providing online learning resources in accounting, economics, and marketing management. The adjusted trial balance of Wisdom Learning as at 30 June 2019 as follows. Debit $ Credit $ Cash at Bank 17200 Accounts Receivable 3900 Office Supplies 900 Prepaid Rent 3000 Equipment 60000 Accumulated Depreciation - Equipment 300 Furniture 27000 Accumulated Depreciation - Furniture 450 Accounts Payable 12300 Salary Payable 1350 Interest Payable 150 Unearned Service Revenue 2400 Loan Payable 60000 Owner’s, Capital 4800 Owner’s, Drawings 1500 Service Revenue 39600 Rent Expense 2100 Salary Expense 4700 Supplies Expense 150 Depreciation Expense - Building 300 Depreciation Expense - Furniture 450 Interest Expense 150 121350 121350 Required: a)     Prepare Wisdom Learning’s Income Statement for the year ended 30 June 2019. b)    Prepare Wisdom Learning’s Statement of Changes in Equity for the year ended 30 June 2019. c)     Calculate Wisdom Learning’s Profit Margin and Return on Assets ratios (the total assets at 30 June 2018 was $109000). (Show all calculations, Round off the answers to the nearest 2 decimal places). d)    (i) Calculate Wisdom Learning’s Current ratio and the Debt-to-total assets ratio at 30 June 2019. (Show all calculations, Round off the answers to the nearest 2 decimal places). (ii) Discuss Wisdom Learning’s liquidity and solvency positions at 30 June 2019 as compared to 2018 (the Current ratio was 1.65:1 and the Debt-to-total assets ratio was 54.75% at 30 June 2018). (Total 20 Marks)

Required:

a)     Prepare Wisdom Learning’s Income Statement for the year ended 30 June 2019.

b)    Prepare Wisdom Learning’s Statement of Changes in Equity for the year ended 30 June 2019.

c)     Calculate Wisdom Learning’s Profit Margin and Return on Assets ratios (the total assets at 30 June 2018 was $109000). (Show all calculations, Round off the answers to the nearest 2 decimal places).

d)    (i) Calculate Wisdom Learning’s Current ratio and the Debt-to-total assets ratio at 30 June 2019. (Show all calculations, Round off the answers to the nearest 2 decimal places).

(ii) Discuss Wisdom Learning’s liquidity and solvency positions at 30 June 2019 as compared to 2018 (the Current ratio was 1.65:1 and the Debt-to-total assets ratio was 54.75% at 30 June 2018). (Total 20 Marks)

Answer 1

a)			Income statement
		For the year ended 30 June 2019
					$	$
	Service Revenue					39600
	Less:Expenses
	Rent Expense				2100
	Salary Expense				4700
	Supplies Expense				150
	Depreciation Expense - Building				300
	Depreciation Expense - Furniture				450
	Interest Expense				150	7850
	Net income					31750
b)		Statement of changes in equity
				Owner's capital	Owner's drawings	Total
	Beginning balance			4800	1500	3300
	Add:Net income			31750		31750
	Ending balance			36550	1500	35050
c)	Profit margin=Net income/Service revenue=31750/39600=0.8018=80.18%
	Return on assets=Net income/Average total assets
	Average total assets=(Beginning total assets+Ending total assets)/2
	Ending total assets:
					$
	Cash at Bank				17200
	Accounts Receivable				3900
	Office Supplies				900
	Prepaid Rent				3000
	Equipment				60000
	Accumulated Depreciation - Equipment				-300
	Furniture				27000
	Accumulated Depreciation - Furniture				-450
	Total				111250
	Average total assets=(109000+111250)/2=$ 110125
	Return on assets=31750/110125=0.288309=28.83%
d)
(i)	Current ratio=Current assets/Current liabilities
	Current assets:
					$
	Cash at Bank				17200
	Accounts Receivable				3900
	Office Supplies				900
	Prepaid Rent				3000
	Total				25000
	Current liabilities:
					$
	Accounts Payable				12300
	Salary Payable				1350
	Interest Payable				150
	Unearned Service Revenue				2400
	Total				16200
	Current ratio=25000/16200=1.54:1
	Debt to total assets=Debt (Loan payable)/Total assets=60000/111250=0.5393=53.93%