Good Toys Limited (Good Toys) is a well-established toy trading company. Weighted average cost method and...

 

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Good Toys Limited (“Good Toys") is a well-established toy trading company. Weighted average cost method and perpetual inventory system are adopted in the accounting for its inventory valuation. Good Toys prepares its adjusting entries and financial statements monthly. Closing entries are performed annually at the financial year ended on December 31. The company has provided the following adjusted trial balance on November 30, 2020. Good Toys Limited Adjusted Trial Balance As at November 30, 2020 Debit (S) Credit (S) Cash Inventory (1,000 units at $150 each) Accounts receivable Land and Building (net) Equipment (net) Allowance for impairment Accounts payable Share capital Retained earnings Dividends Sales revenue 606,000 150,000 235,000 2,600,000 60,000 48,000 59,000 200,000 765,000 45,000 6,800,000 Cost of goods sold Insurance expense Operating expense Impairment loss of receivable 2,232,000 35,000 1,670,000 239,000 7,872,000 7,872,000 E The following activities took place in December 2020: Dec. 1 Sold 800 units of laptop toys for $400 each to Jacky Limited on account. Dec. 10 Received from Tenant Limited, $60,000, as the prepayment for 3 months' rent income for letting out part of the warehouse from January 1, 2021 to March 31, 2021. Dec. 11 Purchased 1,800 units of laptop toys at a cost of $155 per unit from Jensen Limited on account. Dec. 18 Sold 1,500 units of laptop toys for $500 each to Samson Limited on account. Dec. 21 The management of Good Toys determined that the amount due from a customer, Wiseman Limited, S26,000 is uncollectible as the company has closed down. Dec. 25 Purchased 700 units of laptop toys at a cost of $160.5 per unit for cash. Dec. 28 Received a check of $3,600 from the liquidator of Tomson Limited. Tomson Limited was closed down in March 2020. The managing director of Good Toys authorized to write off $20,000, being the full amount due from Tomson Limited, on March 31, 2020. The following additional information is available on December 31, 2020: (i) Accrued operating expenses for the month were $75,000. A year-end physical count reported that 1,195 units of laptop toys remained on hand at December 31, 2020. The missing units of laptop toys were not considered significant relative to the total units of laptop toys on hand. (ii) A recent aging of the company's accounts receivable helped management to conclude that an allowance for impairment of $98,000 was needed on December 31, 2020. (iii) Required: (Show all calculations and round ALL answers to 2 decimal places.) a. Prepare the journal entries for all December 2020 transactions, including all necessary adjusting entries. If a transaction does not require any entry, state "No entry is required". (Explanation for each journal entry is NOT required.) (24 marks) b. What is the net realizable value of accounts receivable to be shown in the statement of financial position as at December 31, 2020. Show your calculations. (5 marks) a. Adrian Company or Lucy Company. After comparing the ratios of both companies in (a), which loan application would you approve? Explain. (8 marks) Good Toys Limited (“Good Toys") is a well-established toy trading company. Weighted average cost method and perpetual inventory system are adopted in the accounting for its inventory valuation. Good Toys prepares its adjusting entries and financial statements monthly. Closing entries are performed annually at the financial year ended on December 31. The company has provided the following adjusted trial balance on November 30, 2020. Good Toys Limited Adjusted Trial Balance As at November 30, 2020 Debit (S) Credit (S) Cash Inventory (1,000 units at $150 each) Accounts receivable Land and Building (net) Equipment (net) Allowance for impairment Accounts payable Share capital Retained earnings Dividends Sales revenue 606,000 150,000 235,000 2,600,000 60,000 48,000 59,000 200,000 765,000 45,000 6,800,000 Cost of goods sold Insurance expense Operating expense Impairment loss of receivable 2,232,000 35,000 1,670,000 239,000 7,872,000 7,872,000 E The following activities took place in December 2020: Dec. 1 Sold 800 units of laptop toys for $400 each to Jacky Limited on account. Dec. 10 Received from Tenant Limited, $60,000, as the prepayment for 3 months' rent income for letting out part of the warehouse from January 1, 2021 to March 31, 2021. Dec. 11 Purchased 1,800 units of laptop toys at a cost of $155 per unit from Jensen Limited on account. Dec. 18 Sold 1,500 units of laptop toys for $500 each to Samson Limited on account. Dec. 21 The management of Good Toys determined that the amount due from a customer, Wiseman Limited, S26,000 is uncollectible as the company has closed down. Dec. 25 Purchased 700 units of laptop toys at a cost of $160.5 per unit for cash. Dec. 28 Received a check of $3,600 from the liquidator of Tomson Limited. Tomson Limited was closed down in March 2020. The managing director of Good Toys authorized to write off $20,000, being the full amount due from Tomson Limited, on March 31, 2020. The following additional information is available on December 31, 2020: (i) Accrued operating expenses for the month were $75,000. A year-end physical count reported that 1,195 units of laptop toys remained on hand at December 31, 2020. The missing units of laptop toys were not considered significant relative to the total units of laptop toys on hand. (ii) A recent aging of the company's accounts receivable helped management to conclude that an allowance for impairment of $98,000 was needed on December 31, 2020. (iii) Required: (Show all calculations and round ALL answers to 2 decimal places.) a. Prepare the journal entries for all December 2020 transactions, including all necessary adjusting entries. If a transaction does not require any entry, state "No entry is required". (Explanation for each journal entry is NOT required.) (24 marks) b. What is the net realizable value of accounts receivable to be shown in the statement of financial position as at December 31, 2020. Show your calculations. (5 marks) a. Adrian Company or Lucy Company. After comparing the ratios of both companies in (a), which loan application would you approve? Explain. (8 marks)

Answer rating: 100% (QA)

C For giving transient credit the bank will take a gander at the liquidity proportions of the candid... View the full answer