Assignment -
Q1. Ron has started a new lawn mowing company. The financial transactions of the company in the first month of operating are:
On the 1st of June the company buys 3 lawn mowers for $880 each and 2 edgers for $420 each. It also purchases $160 of petrol. All of these purchases were made using Ron's own money. On the 3rd of June he finishes his first job and the company invoices the customer for $370.
On the 5th of June one of the lawn mowers breaks down and so Ron takes it for repairs.
On the 8th of June the lawn mower is repaired and Ron's company is invoiced for $160.
On the 9th of June he finishes his second job and the company invoices the customer for $450. On the 11th of June the company receives $370 in payment for the first job.
On the 12th of June the company buys $90 of petrol and pays with cash.
On the 15th of June he finishes the third job and the company invoices the customer for $330. On the 16th of June the company receives $330 in payment for the third job.
On the 19th of June he finishes his fourth job and the company invoices the customer for $480. On the 22nd of June the company buys $50 of petrol and pays with cash.
On the 25th of June he finishes his fifth job and the company invoices the customer for $360. On the 26th of June the company receives $480 in payment for the fourth job.
On the 29th of June Ron pays himself a salary of $400. (He takes this as a salary rather than as a dividend so that the company can have a tax deduction).
At the end of the month the company has $40 of petrol remaining. Ron calculates that the lawn mowers and edgers have depreciated by $174. He has information that indicates that only only 5% of customers fail to pay in his area of business. The tax rate that applies to his company is 30%. (The company has not paid any tax yet.)
For this first month determine the company's (all answers should be to the nearest cent):
Q2. A company purchases a piece of plant for $350.000 with an expected life of 5 years, when it expects to be able to sell it for $50.000. The cost of capital for this company is 11%. Determine the depreciation to be charged each year using each method in the table below. Answers should be correct to 2 decimal places.
Note: the question is asking for the amount of depreciation for each year. This is the amount that should be used as an expense for that year. This means that the total sum for each column should be the same.
Q3. A certain company has historical records that show that:
15% of its customers pay in the first month after being invoiced
55% of its customers pay in the second month after being invoiced
20% of its customers pay in the third month after being invoiced
Any debts that are still outstanding after three months are sold to a debt collection agency for 30% of their value.
On the last business day of each month the company's accounting department issues all invoices for the month, issues reminders for previous invoices that have not yet been paid, and sells the unpaid three month old debts to the debt collection agency. mmediately after performing these actions in a particular month its accounts receivable profile is
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Months since the customer was invoiced
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Total outstanding
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0
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$5,600
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1
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$3,100
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2
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$1,000
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How much should this company allow for doubtful accounts at this time? (Answer to the nearest cent).