Question

In: Accounting

Based on the case below, you are requested to: Provide the balance for Advance to Suppliers...

Based on the case below, you are requested to:

  1. Provide the balance for Advance to Suppliers as of December 31, 2017.
  2. Record the transactions that occurred through 2018, in whatever fashion you choose (T-accounts, Journal Entries, or other methodology of your choosing)
  3. Prepare the following:
    1. 2018 Income Statement
    2. Balance Sheet as of December 31, 2018
    3. 2018 Cash Flow Statement

Please provide all work in an Excel or Google Spreadsheet file. The presentation of the work is expected to be “review ready” for a supervisor.

What we are looking for

  1. Put in an honest self-directed effort, but spend no more than 60-90 minutes
  2. Your financial understanding is more relevant than having the answer correct. Show your work so we can understand how you approached the solution.
  3. Presentation matters. Showcase your understanding in a “presentation-ready” manner through the Excel File.

Case - NGST

NextGen Sports Technology Inc. (NGST) is a VR headset manufacturer/retailer that started its operations during the 2015. Many years later, the balance sheet for December 31, 2017, showed the following account balances (there were no other accounts listed):

Account Amount
Common Equity 500
Loan from Bank 28
Prepaid Services 10
PPE 410
Interest Receivable 5
Cash 618
Wages Payable 10
Accounts Payable 1
Loan to GlassMaker (separate company) 25
Accumulated Depreciation 145
Accounts Receivable 120
Retained Earnings 781
Trademark ("View The Future") 195
Prepaid Rent 7
Advances to Suppliers ???

During 2018 the following transactions occurred:

  1. Cash sales were $800, credit sales were $1,200 and the ending balance of accounts receivable was $210.
  2. NGST purchased $1,706 worth of inventory, and paid its suppliers $1,607.
  3. A new machine was purchased, in cash, for $200. Depreciation expense for the year was $80.
  4. In addition to the transactions in item 2 above, NGST purchased, from the supplier it had advances with on December 31, 2017, 120 VR headsets, at $2.50 per unit. By the end of the year, NGST settled the account and paid it in full.
  5. NGST declared a dividend of $75, and paid in cash $60.
  6. GlassMaker paid NGST $37: $5 for the interest related to last year (recorded as interest receivable in 2017), $7 for interest related to the year 2018, and the rest ($25) against the loan principal.
  7. On the first day of the year, NGST sold to FutureCast, for $195 cash, the right to use the trade name “View The Future”.
  8. Ending inventory, including the remaining units of VR Headsets, was $106.
  9. The employees of NGST earned $75, and were paid $80 as wages.
  10. Rent expense for 2018 was $150, while rent payments were $136.
  11. NGST accrued interest of $8 on its loan from the bank. No payments were made during the year.
  12. The VP of Finance of NGST was invited to a dinner at the TriCom. It is believed that the knowledge generated during the dinner will reduce expenses next year by $150.
  13. The prepaid services were used, in full, during the year.

Solutions

Expert Solution

Amount 500 28 Balance sheet as of December 31, 2017 Amount Equity & Liabilities 10 Common Equity 410 Loan from Bank 5 Wages Payable 618 Accounts Payable 25 Accumulated Depreciation 120 Retained Earnings 195 10 Assets Prepaid Services PPE Interest Receivable Cash Loan to Glassmaker Accounts Receivable Trademark ("View the Future") Prepaid Rent Advances to Suppliers Total 1 145 781 7 75 1,465 Total 1,465 Details Amount 1,465 Total Liabilities Less: Total assets except Advances to Suppliers (1,390) Advances to Suppliers as of 12/31/2017 75

Credit Debit 800 1,200 2,000 1,110 Journal entries for transactions during the Year 2018 Sr.No. Particulars 1 Cash Accounts Receivable Sales (Cash and Credit Sales made during the Year) 2 Cash Accounts Receivable (Paid to Accounts Receivable during the Year) 3 Purchase/Inventory Accounts Payable (Purchase paid during the year) 4 Accounts Payable Cash (Purchase paid during the year) 1,110 1,706 1,706 1,607 1,607 5 PPE 200 200 80 80 300 300 300 75 225 75 751 60 Cash (New Machine Purchased during the year) 6 Depreciation Expense Accumulated Depreciation (Depreciation for the year) 7 Purchase/Inventory Accounts Payable (120 VR headsets purchased at $2.5 Per Unit) 8 Accounts Payable Advances to Suppliers Cash (Pending Payment for VR Headsets paid) 9 Dividend Dividend Payable (NGST Declared dividend of $75) 10 Dividend Payable Cash (NGST Paid $60 Dividend during the Year) 11 Cash Interest Receivable Interest Income Loan to Glassmaker ||$37 Received from Glassmaker) 12 Cash Trademark ("View The Future") (Trademark Sold on 1st day of the year) 13 Employee Salary Wages Payable Cash (Employee earned $75 and paid $80 During the year) 14 Rent Expense Cash 60 37 5 25 195 195 75 5 80 150 136

7 8 Prepaid Rent Rent Payable (Rent expense for 2018 was $150, while rent payments were $136.) 15 Interest Expense Accrued Interest (Accrued Interest on Loan taken for the Year 2018) 16 Services Expnese Prepaid Services (prepaid services were used, in full, during the year.) 8 10 10

Income Statement for the Year 2018 Particulars Sales Cost of Goods Sold Gross Profit Selling, general, and administrative expense Total Operating Expense Net Operating Profit Depreciaton and amoratization Interest Income |EBIT Interest expense EBT Dividend Net Profit Transfer to Retained Earnings Amount 2,000 (1,900) 100 (235) (235) (135) (80) (208) (8) (216) (75) (291) Balance sheet as of December 31, 2018 Particulars December 31, 2018 Current Assets: Cash Receivables Inventories 475 210 106 791 (A) Fixed Assets: Property, plant, and equipment, gross Accumulated depreciation and depletion 610 (225) 385 (B) Total Assets 1,176 100 Current Liabilities: Accounts payable Dividend Payable Wages Payable Rent Payable Accrued Interest 15 5 7 8 135 (c) Non Current Liabilities: Loan from Bank 28 28 (D) Owner's Equity Common Equity Retained Earnings 500 490 990 (E) Total Liabilities and Capital 1,153 Missing Information for this diffrence 23

Cash Flow Statement for the Year ended 2018 Details Amount Net Profit Add: Dividend Paid Add: Depreciation ( 72,000 - 54,000) Add: Changes in Working Capital Increase in Current Liabilities Decrease in Current Assets Net Cash Flow from Operating Activities (216) 60 80 124 121 169 Purchase of Fixed Asset Net Cash Flow from Investing Activities 200) (200 Payment of Dividend Net Cash Flow from Financing Activities (60) (60) Net Increase in Cash and Cash Equivalents A+B+ (91) Cash balance as on 1st Jan, 2018 618 Cash and Cash Equivalents as on 31st Dec,2018 (D+E) 527

Amount 500 28 Balance sheet as of December 31, 2017 Amount Equity & Liabilities 10 Common Equity 410 Loan from Bank 5 Wages Payable 618 Accounts Payable 25 Accumulated Depreciation 120 Retained Earnings 195 10 Assets Prepaid Services PPE Interest Receivable Cash Loan to Glassmaker Accounts Receivable Trademark ("View the Future") Prepaid Rent Advances to Suppliers Total 1 145 781 7 75 1,465 Total 1,465 Details Amount 1,465 Total Liabilities Less: Total assets except Advances to Suppliers (1,390) Advances to Suppliers as of 12/31/2017 75

Credit Debit 800 1,200 2,000 1,110 Journal entries for transactions during the Year 2018 Sr.No. Particulars 1 Cash Accounts Receivable Sales (Cash and Credit Sales made during the Year) 2 Cash Accounts Receivable (Paid to Accounts Receivable during the Year) 3 Purchase/Inventory Accounts Payable (Purchase paid during the year) 4 Accounts Payable Cash (Purchase paid during the year) 1,110 1,706 1,706 1,607 1,607 5 PPE 200 200 80 80 300 300 300 75 225 75 751 60 Cash (New Machine Purchased during the year) 6 Depreciation Expense Accumulated Depreciation (Depreciation for the year) 7 Purchase/Inventory Accounts Payable (120 VR headsets purchased at $2.5 Per Unit) 8 Accounts Payable Advances to Suppliers Cash (Pending Payment for VR Headsets paid) 9 Dividend Dividend Payable (NGST Declared dividend of $75) 10 Dividend Payable Cash (NGST Paid $60 Dividend during the Year) 11 Cash Interest Receivable Interest Income Loan to Glassmaker ||$37 Received from Glassmaker) 12 Cash Trademark ("View The Future") (Trademark Sold on 1st day of the year) 13 Employee Salary Wages Payable Cash (Employee earned $75 and paid $80 During the year) 14 Rent Expense Cash 60 37 5 25 195 195 75 5 80 150 136

7 8 Prepaid Rent Rent Payable (Rent expense for 2018 was $150, while rent payments were $136.) 15 Interest Expense Accrued Interest (Accrued Interest on Loan taken for the Year 2018) 16 Services Expnese Prepaid Services (prepaid services were used, in full, during the year.) 8 10 10

Amount 2,000 (1,900) 100 (235) (235) Income Statement for the Year 2018 Particulars Sales Cost of Goods Sold Gross Profit Selling, general, and administrative expense Total Operating Expense Net Operating Profit Depreciaton and amoratization Interest Income |EBIT Interest expense EBT Dividend Net Profit Transfer to Retained Earnings (135) (80) 7 (208) (8) (216) (75) (291) Balance sheet as of December 31, 2018 Particulars December 31, 2018 Current Assets: Cash Receivables Inventories 452 210 106 769 (A) Fixed Assets: Property, plant, and equipment, gross Accumulated depreciation and depletion 610 (225) 385 (B) Total Assets 1,153 Current Liabilities: Accounts payable Dividend Payable Wages Payable Rent Payable Accrued Interest 100 15 5 7 8 135 (C) Non Current Liabilities: Loan from Bank 28 28 (D) Owner's Equity Common Equity Retained Earnings 500 490 990 (E) Total Liabilities and Capital 1,153

Cash Flow Statement for the Year ended 2018 Details Amount Net Profit Add: Dividend Paid Add: Depreciation ( 72,000 - 54,000) Add: Changes in Working Capital Increase in Current Liabilities Decrease in Current Assets Net Cash Flow from Operating Activities (291) 60 80 124 121 94 Purchase of Fixed Asset Net Cash Flow from Investing Activities (200) (200) Payment of Dividend Net Cash Flow from Financing Activities (60) (60) Net Increase in Cash and Cash Equivalents(A+B+ (166) Cash balance as on 1st Jan, 2018 618 Cash and Cash Equivalents as on 31st Dec,2018 (D+E) 452

1 Cost of Goods Sold Details Purchase - 1 Purchase - 120 VR headsets Ending Inventory Cost of Goods Sold Amount 1,706 300 -106 1,900 Amount 618 800 1,110 2 Ending Cash Balance Details Opening Cash Balance Cash Sales Received From Accounts Receivables Received on sale of Trademark Received from Glassmaker Paid to Accounts Payable Paid to Purchase PPE Paid to Suppliers of VR Headsets Dividend Paid Rent Paid Employees salaries payment Cash Balance as on 12/31/2018 195 37 (1,607) (200) (225) (60) (136) (80) 452


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