Intermediate Accounting Q3

Question 3 (40 marks) ACY Limited ("ACY") sells consumer products. The financial year of ACY ends on 31 December. A gross profit margin of 45% and a net profit margin on sales of 15% were recorded in 2018. Below is an extract of its trial balance as at 31 December 2019 for the year's results: DEBIT CREDIT Supplies 1,000 Equipment 500.000 Accumulated depreciation 100,000 Note payable 100,000 Sales revenue 1,000,000 Sales discount 10,000 Cost of goods sold 500,000 Advertising expense 20,000 Salaries and wages expense 1 10,000 Other administrative expenses 84,000 Interest expense 5,000 Below information is not yet reflected in the trial balance above: (i) Salaries and wages expense of $20,000 for the month of December 2019 are not yet accrued and recorded. The company employs one administrative assistant. (ii) Supplies had been fully consumed for office use and nil remained on hand. (iii) Depreciation expense for 2019 is not yet recorded. Useful life of the equipment is ten years. Residual value is negligible. Straight-line depreciation method is adopted. (Usage: around 30% for selling activities and 70% for administrative purposes). (iv) Income tax rate is 16.5%. Required: (a) Prepare all the adjusting entries required for the year. (8 marks) (b) Prepare the statement of profit or loss for the year. (20 marks) (c) Calculate the ratios below and evaluate ACY's profitability in the year: (1) Gross profit margin; and (ii) Net profit margin on sales. (12 marks) In Question 3, round your answers to one decimal place in amount / dollar / percentage (if applicable) [Total for Question 3: 40 marks]