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Hello sir,
1)A new entity was formed with an initial issue of 1000 shares sold for $1 cash.Inventory costing $800 net of sales tax at 17.5% was purchased on credit.Half of this inventory was then sold for $1000 plus sales tax, the customer paying promptly in cash .
The answer is assets $2575 less liabilities $975 equals capital $1600
Could you please show how did we got the above answer ?
2)
Under the statement of cash flowsScents had the following balances in its statements of financial position as at 30 Sept 2004 and 2005.
2004. 2005
Loan interest accrual. 5000. 3000
Approved ordinary dividends. 20000. 2500010% loan notes $100000. $100000
Ordinary share capital 150000. 150000
8% preference share capital 50000. 50000How much will appear in the statement of cash flows for the year ended 30 Sept 2005 for the ordinary dividends paid?
Answer is 20,000
Could you please show how did we got 20000?
Many thanks
1) Cash: 1,000 from the issue of shares, plus 1,175 from sales receipts of 1,000 plus sales tax.
Inventory: 1/2 x 800 = 400.
So total assets = 1,000 + 1,175 + 400 = $2,575Payables: 800 + 17.5% = 940.
Sales tax owing to the state: tax on sales is 175; tax on purchases = 140. There tax owing = 175 – 140 = 35.
So total liabilities = 940 + 35 = $9752) $20,000 is the amount that was owing at the end of 2004, and so this will have been paid in 2005. (The 25,000 owing at the end of 2005 will be paid in 2006).
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