Question

Please Provide the answers and Solution for this question.

Question One

The financial records of Manchester Corporation were destroyed by fire at the end of 2017. Fortunately, the controller had kept the following statistical data related to the income statement and the balance sheet in addition to the published balance sheet of the year 2017:

• The beginning merchandise inventory was $92,000 and decreased 20% during the current year.
• Sales discounts amount to $17,000.
• Interest expense was $20,000.
• The income tax is $106,000.
• Cost of goods sold amounts to $500,000.
• Administrative expenses are 18% of cost of goods sold but only 8% of gross sales.
• 4/5 of the operating expenses relate to sales activities.

During the year 2018, the company had the following transactions.                                                                                             

1. Manchester Corporation sold part of its investment portfolio for $15,000 and this transaction resulted in a gain of $3,400 for the firm. The company classifies its investments as non-trading equity.
2. A tract of land was purchased for $18,000 cash.
3. Long-term notes payable in the amount of $16,000 were retired before maturity by paying $16,000 cash.
4. An additional $20,000 in ordinary shares were issued at par.
5. Dividends totaling $8,200 were declared and paid to shareholders.
6. Depreciation expense of year 2018 is $11,000.
7. Land was purchased through the issuance of $30,000 in bonds.
8. At December 31, 2018, Cash was $32,000, Accounts Receivable (net) was $41,600, and Accounts Payable remained at $30,000.

                                                                 

The financial position statement of the year 2017.

                                                                                            

Manchester Corporation Statement of Financial Position December 31, 2017
Assets
Investments	32,000
Equipment assets (net)	81,000
Land	40,000
Accounts receivables (net)	21,200
Cash	20,000
Totals	194,200
Equity & Liabilities
Share capital-Ordinary	32,000
Retained earnings	81,000
Long-term notes payable	40,000
Accounts payable	21,200
Totals	194,200

Instructions:                                                                                  

1. Prepare an Income statement for 2018 and EPS.
2. Prepare a retained earnings statement for 2018.
3. Prepare a statement of financial position as it would appear at December 31, 2018.
4. Prepare a statement of cash flows for 2018.
5. Critically evaluate the rationale for the statement of financial position; income statement; and statement of cash flow.
6. What is the indication for EPS?

Answer 1

As per the data given in the question:

Opening Stock = $92,000

Closing Stock = $73,600

Cost of Goods Sold = $500,000

Administration Exp. = 18% of cost of goods sold but only 8% of gross sales

                                     = $90,000

Gross Sales = $1,125,000 ( $90000 / 0.08)

Operating Expense = 4/5 of the operating expenses relate to sales activities

Administration Expenses = $90,000 So it is 1/5th of operating Expenses.      

So Total Expenses = 90000/5*1 = $450,000

Therefore, Operating Expenses = $3,60,000

Calculation of Purchases:

COGS = opening Stock + Purchases – Closing Stock

500,000 = 92,000 + Purchases – 73,600

Purchases = $ 481,600

(A)

Manchester Corporation
Single Step Income Statement
for the year ended December 31, 2018
Particulars	Amount ($)	Amount ($)
Gross Sales	1,125,000.00
Less : Sales Return	17,000.00	1,108,000.00
Non operating Income		3,400.00
Total Income		1,111,400.00
Expenses:
- Cost of Goods Sold	500,000.00
- Operating Expense
- Administration Expenses	90,000.00
- Sales Expenses	360,000.00
- Interest Expenses	20,000.00
- Depreciation Expenses	11,000.00
- Income Tax Expenses	106,000.00
Total Expenses		1,087,000.00
Net Income		24,400.00
Earning Per Share	= Net Income / No. of Shares
	= 24400/ 20000
	$                          1.22

(B)

Calculation of Retained Earnings
Particulars	Amount ($)
Opening Balance	81,000.00
Add : Net Profit during the year	24,400.00
Less : Dividend paid	8,200.00
Closing balance of Retained Earnings	97,200.00

(C)

Manchester Corporation
Statement of Financial Position as on December 31,2018
Assets	Amount ($)
Investments	20,400
Equipment assets (net)	70,000
Land	88,000
Accounts receivables (net)	41,600
Cash	13,200
Totals	233,200
Equity & Liabilities
Share capital-Ordinary	52,000
Retained earnings	97,200
Long-term notes payable	54,000
Accounts payable	30,000
Totals	233,200

(D)