Chapter 6 INCOME STATEMENT

QUESTION 1

Prepare an income statement for the year ended 30 June 2006 given the
following balances.
$
Cash 3,000
Sales 280,000
Salary and wages 37,000
Accounts receivable 15,000
Loan interest 4,000
Insurance 2,000
Loan 40,000
Telephone and postage 1,500
Rent and rates 12,400
Cost of sales 160,000
Inventory 11,000
Accounts payable 9,100
Heat and light 3,700
Motor vehicles 32,000
Equipment repairs 1,600
Depreciation motor vehicles 4,500
Motor vehicle running costs 1,700
Depreciation equipment 3,200
Royalties received 1,700
Accounting and audit 3,400
Bad and doubtful debts 800

QUESTION 2

Below is the financial information of SSS Mart Pty Ltd for the year ended 31
December 2008:
$
Income tax 20,000
Sales revenue 1,000,000
Selling expenses 80,000
Opening/Beginning inventory 150,000
Administrative expenses 100,000
Closing/Ending inventory 150,000
Financial expenses 20,000
Net purchases 610,000

Required:

Prepare an income statement for the year ended 31 December 2008 for SSS
Mart Pty Ltd.

RMIT International University | ACCT2105 Accounting for Organisations and Society 1

Tutorial Exercise
QUESTION 3

Three years ago, T. Roderick organized Harbor Realty. At December 31,

2008, at the end of the current fiscal year, the following financial information
was provided:
$
Cash 3,425
Accounts receivable 7,000
Supplies 1,270
Prepaid insurance 620
Office equipment 51,650
Accumulated depreciation 9,700
Accounts payable 925
Unearned fees 1,250
Capital 29,000
Drawing 5,200
Fees earned 59,125
Wages expense 22,415
Rent expense 4,200
Utilities expense 2,715
Miscellaneous expense 1,505

Additional Information:
Depreciation of Equipment during the year is $4,950

Required:

Prepare the income statement for the year ended 31 December 2008 and
balance sheet as at 31 December 2008.

RMIT International University | ACCT2105 Accounting for Organisations and Society 2

Tutorial Exercise/Topic 4
QUESTION 4

The following are the financial data of Parachute Repair at the end of the
period 31 December 2008. Make the necessary adjustments.
$
Cash 12,950
Supplies 4,295
Prepaid insurance 2,735
Equipment 40,650
Accumulated depreciation Equipment 9,209
Motor vehicles 36,300
Accumulated depreciation Motor vehicles 6,400
Accounts payable 2,015
Bank loan 10,000
Jessie Toh, Capital 26,426
Jessie Toh, Drawing 5,000
Service revenue 91,950
Salaries expense 23,925
Rent expense 10,600
Motor vehicle expense 7,350
Miscellaneous expense 2,195

Adjustments:
a. Depreciation of equipment during the year is $ 3,380
b. Depreciation of trucks during the year is $4,400
c. The bank loan will be repaid over five years time at equal yearly
instalment. The first instalment will commence on 30 September 2009.

Required:

Prepare the income statement for the year ended 31 December 2008 and
balance sheet as at 31 December 2008.

RMIT International University | ACCT2105 Accounting for Organisations and Society 3

Tutorial Exercise/Topic 4
QUESTION 5

Tan Kia See started a management consultancy business, Apex Consultancy.

The following financial data is for the year ended 30 June 2009:
$
Cash 18,680
Accounts receivable 2,000
Supplies 3,720
Prepaid insurance 4,400
Equipment 26,000
Accumulated depreciation-Equipment 2,600
Account payable 1,100
Tan Kia See, Capital 35,100
Service fee 48,800
Unearned rental revenue 5,300
Salaries expense 27,400
Utilities expense 5,400
Miscellaneous expense 5,300

Additional information:
Depreciation for the equipment is $2,600.

Required: -

(a) Prepare the income statement for the year ended 30 June 2009.
(b) Prepare the balance sheet as at 30 June 2009.

RMIT International University | ACCT2105 Accounting for Organisations and Society 4

Tutorial Exercise/Topic 4
QUESTION 6

Devis Laundry presents the following financial data for the period ended 30
June 2009 which is the end of the current year.
$
Cash 3,100
Laundry supplies 6,560
Prepaid insurance 4,490
Laundry equipment 105,100
Accumulated depreciation 40,200
Accounts payable 6,100
T. Smith, Capital 37,800
T. Smith, Drawings 2,000
Laundry revenue 150,900
Salaries expense 61,400
Rent expense 36,000
Utilities expense 13,650
Miscellaneous expense 2,700

Additional Information: (for adjustment)

Depreciation of equipment during the year is $7,000

Required: -

Prepare an income statement and a balance sheet.

More EXERCISES:

Textbook:
A. Attempt the Comprehension Questions 6.3,6.4, 6.8
B. Application and Analysis exercise: 6.16,6.17,6.20,6.21, 6.23,6.25, 6.26
C. Synthesis and Analysis Problem: 6.37

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Tutorial Exercise/Topic 4
Multiple Choice Questions

1. The income statement

a. presents the income and expenses of an entity for a specific period of

time.
b. reports the changes in assets, liabilities and equity over a period of time.
c. reports the assets, liabilities and equity at a specific point in time.
d. summarises the change in retained earnings over a specific period of time.

2. Equity is increased by

a. liabilities.
b. expenses.
c. income.
d. dividends

3. Which of these will be recorded as income?

a. A loan is received from a bank

b. Money is collected from a customer owing from goods sold last week
c. A sale is made on credit
d. Additional capital is contributed by the owner

4. If an expense is paid for in cash, then

a. liabilities will decrease.

b. assets will decrease.
c. assets will increase.
d. equity will increase.

Use the following information to answer questions about Binh Thuong, Co.:

RMIT International University | ACCT2105 Accounting for Organisations and Society 6

Tutorial Exercise/Topic 4
Sales $1000
Cost of Goods Sold $550
Interest Received $50
Royalty Received $25
Salary Expense $40
Rent Expense $60
Depreciation Expense $80
Cash $500
Accounts Payable $120
Revenue Received in Advance $200

1. What is the amount of Gross Profit?

a. $525
b. $450
c. $345
d. $950

2. What is the amount of Total Income?

a. $525
b. $450
c. $650
d. $950

3. What is the amount of Total Operating Expenses?

a. $300
b. $500
c. $380
d. $180

4. What is the amount of Net Income?

a. $545
b. $345
c. $845
d. $65

Account Names (non exhaustive list)

RMIT International University | ACCT2105 Accounting for Organisations and Society 7
Tutorial Exercise/Topic 4
Advertising expense
Accounting and audit expense
Bad and doubtful Debts Expense
Commission expense
Commission fees
Cost of goods sold/Cost of Sales
Depreciation expense
Fees (as Revenue)
Insurance expense
Interest expense
Interest received (income)
Miscellaneous Expense
Office supplies expense
Operating Expenses
Property taxes expense
Rent Expense
Royalties received (income)
Salary expense
Sales
Supplies expense
Tax expense
Telephone and postage expense
Utilities Expense
Wages expense

RMIT International University | ACCT2105 Accounting for Organisations and Society 8

Tutorial Exercise/Topic 4