Blog: Fin621 Assignment No. 2 solution

Semester “Spring 2011”

“Finanacial Statement Analysis (FIN621)”

Assignment No. 02 Marks: 15

Question:

In the beginning of year 2010 Mr. Nauman, Mr. Ali and their other friends organized a company “Printing Solutions (PVT) Ltd”. to start a business of printing press. The company was authorized to issue 100,000 shares having par value of Rs. 10 each and 50,000 shares of 10% cumulative preferred shares having par value of Rs. 100 each. Following are the transaction occurred during the year 2010.

1. Issued 50% of shares of common stock for cash at Rs. 15 per share to Mr. Nauman and other investors of the company.

2. Issued 1,000 shares of common stock to Mr. Ali for his initial services offered for the incorporation of the company. Total initial expenses were incurred Rs. 14,000.

3. Issued 3,000 preferred shares for Rs. 300,000 for cash.

4. Purchased printing machinery from Mr. Nauman in exchange for 10,000 shares of common stock. The cost of the machinery was Rs. 150,000.

5. Paid cash dividend on preferred stock.

6. The company earned 120,000 Net Income during the year 2010.

Instructions:

1. Prepare the stock holder equity section of the Balance sheet as on 31st December 2010 of Security solutions (PVT) Ltd.

2. Prepare journal entries for the above transactions.

Schedule

Opening Date and Time June 09, 2011 At 12:01 A.M. (Mid-Night)

Due Date and Time June 15 , 2011 At 11:59 P.M. (Mid-Night)


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Solution:


1)
Cash/Bank 750,000
To share capital 500,000
To share premium 250,000
(Issuance of common shares at premium)

2)
Preliminary expenses 14,000
To share capital 10,000
To share premium 4,000
(Paid to Mr.Ali 1,000 shares of common stock in consideration of initial services)

3)
Cash/Bank 300,000
To share capital(preferred) 300,000
(issued 3,000 shares of preferred stock at par)

4)
Printing machinery 150,000
To share capital 100,000
To share premium 50,000
(issued 10,000 shares of common stock in consideration of printing machinery)

5)
Income summary 30,000
To Dividend 30,000
(Declaration of dividend)
Dividend 30,000
To Cash/Bank 30,000
(Paid dividend in cash)

6)
Income summary 120,000
To retained earnings 120,000
(Earned profit of Rs.120,000)

HERE IS THE SOLUTION OF PART B

1)
Cash/Bank 750,000
To share capital 500,000
To share premium 250,000
(Issuance of common shares at premium)

2)
Preliminary expenses 14,000
To share capital 10,000
To share premium 4,000
(Paid to Mr.Ali 1,000 shares of common stock in consideration of initial services)

3)
Cash/Bank 300,000
To share capital(preferred) 300,000
(issued 3,000 shares of preferred stock at par)

4)
Printing machinery 150,000
To share capital 100,000
To share premium 50,000
(issued 10,000 shares of common stock in consideration of printing machinery)

5)
Income summary 30,000
To Dividend 30,000
(Declaration of dividend)
Dividend 30,000
To Cash/Bank 30,000
(Paid dividend in cash)

6)
Income summary 120,000
To retained earnings 120,000
(Earned profit of Rs.120,000)
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Question : 1

Preferred stocks 50,000 . Rs.100 par value 5,000,000
Common stock 700,000 . Rs. 1 700,000
Additional Paid in Capital Common stock
700,000 . Rs. 14 9,800,000
Retained Earning 5,450,000
Total equity 20,950,000

2004 to 2008
Working: div common stock: 700,000 x .60= 420,000
= 420,000 x 5 = 2,100,000
Div preferred stock: 9x50,000 = 450,000
= 450,000 x 5 = 2,250,000
Total Div = 2,100,000+2,250,000=4,350,000
Retained earnings up to 2008 = 8,750,000-4,350,000=4,400,000

2009
Div preferred stock: 9x50,000 = 450,000
Retained earnging upto 2009 = 1,500,000 – 450,000 = 1,050,000
Net income 2009 = 1,050,000+4,400,000=5450,000
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Part A
Stock holder Equity
Capital stock Rs
Preferred stock (100*50000) 5000000
Common stock (1*700000) 700000
Additional capital 5700000
Common stock excess value 9800000
Total paid up 15500000
Add: retained earnings 5450000
Total share holder equity 20950000


Part B
1)
Cash/Bank 750,000
To share capital 500,000
To share premium 250,000
(Issuance of common shares at premium)

2)
Preliminary expenses 14,000
To share capital 10,000
To share premium 4,000
(Paid to Mr.Ali 1,000 shares of common stock in consideration of initial services)

3)
Cash/Bank 300,000
To share capital(preferred) 300,000
(issued 3,000 shares of preferred stock at par)

4)
Printing machinery 150,000
To share capital 100,000
To share premium 50,000
(issued 10,000 shares of common stock in consideration of printing machinery)

5)
Income summary 30,000
To Dividend 30,000
(Declaration of dividend)
Dividend 30,000
To Cash/Bank 30,000
(Paid dividend in cash)

6)
Income summary 120,000
To retained earnings 120,000
(Earned profit of Rs.120,000)