Question

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

	Debit $	Credit $
Cash at Bank	12800
Accounts Receivable	2600
Office Supplies	600
Prepaid Rent	2000
Equipment	40000
Accumulated Depreciation - Equipment		200
Furniture	18000
Accumulated Depreciation - Furniture		300
Accounts Payable		8200
Salary Payable		900
Interest Payable		100
Unearned Service Revenue		1600
Loan Payable		40000
Owner’s, Capital		12000
Owner’s, Drawings	1000
Service Revenue		17600
Rent Expense	1400
Salary Expense	1800
Supplies Expense	100
Depreciation Expense - Building	200
Depreciation Expense - Furniture	300
Interest Expense	100
	80900	80900

Required:

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

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

c)     Calculate Talent Learning’s Profit Margin and Return on Assets ratios (the total assets at 30 June 2018 was $71,000) (Show all calculations, Round off the answers to the nearest 2 decimal places).

d)    (i) Calculate Talent 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 Talent Learning’s liquidity and solvency positions at 30 June 2019 as compared to 2018 (the Current ratio was 1.81:1 and the Debt-to-total assets ratio was 52.5% at 30 June 2018). (Total 20 Marks)

Answer 1

a)			Income statement
		For the year ended 30 June 2019
					$	$
	Service Revenue					17600
	Less:Expenses
	Rent Expense				1400
	Salary Expense				1800
	Supplies Expense				100
	Depreciation Expense - Building				200
	Depreciation Expense - Furniture				300
	Interest Expense				100	3900
	Net income					13700
b)		Statement of changes in equity
				Owner's capital	Owner's drawings	Total
	Beginning balance			12000	1000	11000
	Add:Net income			13700		13700
	Ending balance			25700	1000	24700
c)	Profit margin=Net income/Service revenue=13700/17600=0.7784=77.84%
	Return on assets=Net income/Average total assets
	Average total assets=(Beginning total assets+Ending total assets)/2
	Ending total assets:
					$
	Cash at Bank				12800
	Accounts Receivable				2600
	Office Supplies				600
	Prepaid Rent				2000
	Equipment				40000
	Accumulated Depreciation - Equipment				-200
	Furniture				18000
	Accumulated Depreciation - Furniture				-300
	Total				75500
	Average total assets=(71000+75500)/2=$ 73250
	Return on assets=13700/73250=0.1870=18.70%
d)
(i)	Current ratio=Current assets/Current liabilities
	Current assets:
					$
	Cash at Bank				12800
	Accounts Receivable				2600
	Office Supplies				600
	Prepaid Rent				2000
	Total				20400
	Current liabilities:
					$
	Accounts Payable				8200
	Salary Payable				900
	Interest Payable				100
	Unearned Service Revenue				1600
	Total				10800
	Current ratio=20400/10800=1.89:1
	Debt to total assets=Debt (Loan payable)/Total assets=40000/75500=0.5298=52.98%