Review of Financial Statements

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ACCT201 Corporate Reporting and Financial Analysis

HOMEWORK #1

Homework will not be collected or graded. Suggested solutions will be posted on SMUelearn.

NOTE: if you could not do the questions below, please review Introductory Financial Accounting.

Question 1 Adjusting Entries and Statement Preparation

The attached Excel file contains the preclosing trial balance of SMUST Retailers Ltd. as of 31 Dec 2005.

The following additional information is provided to you:
1. The company paid a salary advance of $10,000 to its employees, a total that was debited to the salaries expense account. This was an advance against the employee’s salary for the year 2006. 2. On January 1, 2005 the company paid an insurance premium of $18,000, which was debited to the insurance expense account. The premium provided insurance coverage for 18 months beginning on January 1 2005. 3. The company decided to revise its estimate of bad debts expense by calculating it at 10% of its sales revenue. 4. On January 1, 2006 the board of directors of the company declared an additional dividend of $10,000 for the year 2005.

Required:

1. Prepare the necessary adjusting entries for the year ended December 31, 2005. 2. Prepare an income statement for the year ended December 31, 2005. 3. Prepare a balance sheet as of December 31, 2005.

Question 2 Cash Flow Statement

The attached Excel file contains accounting information of Liquidity Inc. for the year 2005 and 2004.

The following additional information is provided to you:
1. All short term investments (securities available for sale) were purchased on 12/31/04 and sold during 2005. 2. The company entered a lease agreement on 12/31/05.
3. Fixed assets with a net book value of $15 were sold during the year. 4. The company repaid the current portion of long-term debt during the year. 5. Dividend was declared and partially paid.

Required:

1. Prepare the...
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