I have an assignment with answers in intermediate accounting and just add introduction and conclusion .

* Short introduction about 150 words which should be about the aim and objective of the assignment , also what the assignment cover .
* conclusion 150 words about you understanding of the assignment 

Question 1

 

Statement of cash flows for Ahmed Co for the year ended 31 December 2016

 

	000$	000$
Net cash flow from operating activities
Net profit before tax	392
Depreciation	118
Loss on sale of non current asset (property) W1	18
Interest expense	28
Operating profit before working capital changes		556
increase in inventories ( 20 – 24)	(4)
increase in receivables (58 – 76)	(18)
increase in payables ( 6 – 12)	6	(16)
Cash generated from operating		540
interest paid	(28)
Dividend paid	(66)
Tax paid ( 86+ 124 – 102) W2	(108)	(202)
Net cash from operating activities		338
Net cash flow from investing activities
Purchase of non-current asset	(90)
Sale of non-current assets	12
Net cash outflow from investing activities		(78)
Net cash flow from financing activities
Issue of share (360 + 36 – 340 – 24)	32
Prepayment of long-term loan (500 – 200)	(300)
Net cash from financing activities		(268)
Net decrease in cash and cash equivalents ( 338 – 78 – 268 )		(8)
Cash and cash equivalents as at 1/1/2016		56
Cash and cash equivalents as at 31/12/2016		48

 

 

 

 

 

·         Working notes:-

 

1-      Calculation of profit or Loss on sale of non current asset (property)

                                                                                           000$                 000$

Sale of   property                                                                                                        12                                                         

Cost of property                                                                      200

(-) Accumulated Depreciation                                               (170)                (30) NPV Disposal

                          Loss on sale of non current asset                                             18

 

                                  

*Calculation of taxation:                                                           000

Taxation owed as at 1/1/2016                                                      86

(+) taxation charge during the year 2016                                     124

(-) taxation owed as at 31/12/2016                                              (102)

                                     Taxation paid during 2016                    (108)

 

·         Comments:-

 

·         Ahmed Company has positive net cash flow from operating activities by 338,000, which help the corporation to create more cash inflow immediately after pay taxes, interest, debts and dividend. The amount shows organization in great healthful situation.

 

·         In the other hand, net cash flow from investing activities of the Ahmed Company is negative as a result of the company purchase additional machinery (non-current asset) 78 ,000 and that will decrease the cash. But later, will be benefit for the company in the form of extra revenue when used in the operating business. In additions, to reduce large number of cash outflow, the company purchase the assets on installments so that it will make the company can spend less money.                                                                                                                    

 

·         Ahmed Company has negative net cash of 268 ,000 from financing activities as a result of repayments of loan of 268 ,000  out of that total the finance. Negative Cash Flows from Financing Activities may mean that the corporate is actually dealing with more long-term debt or issuing additional equity, however may additionally mean that the corporate is creating higher dividend payments or additional stock repurchases.

 

·         My suggestions to improve the performance of the company that the company should use its income from operating activities to repay dividends and pay off its outside funding. Moreover, the company should has  good technique to repay bank loan because it can save interest payment on bank loan and the company may have paid back lower loan amount to reduce insolvency or bank overdraft. in the last , it should plan its cash flow control stock levels

 

                                   

Question 2

(A)

·         Par on bonds payable arise when a bond’s coupon rate is equal to the market interest rate, investors will purchase it at its par i.e. its face value which is the amount the bond issuer has to pay back to the investors at the end of the term of the bond. Bonds issued at par are issued for consideration exactly equal to the principal amount of the bond.

For example:

Company X has issued 10,000 bonds of $100 at face value on 1 Jan 2016. The bonds carry a coupon rate of 6% to be paid semiannually on 1 Jan and 1 July.  Have a maturity period of 6 yrs .The market interest rate is 6%.

·         Journal entry  of Company X on date of issue ,1 Jan 2016:

Dr .Cash ( 10,000×100)	1,000,000
Cr. Bonds Payable		1,000,000

 

·         Journal entry to record  interest payment semiannually, 1 July 2016 :

Dr. Interest Expense (1,000,000×6%×1/2)	30,000
Dr .Cash		30,000

 

 

·         Journal entry to accrue interest expense of Company X

Dr. Interest Expense	30,000
Dr. Interest payaple		30,000

·         A premium on bonds payable arises when the stated interest rate on a bond is higher than the prevailing market price a company is able to sell its bonds for more than their par value.. That is, when investors are satisfied with a rate of interest lower than the rate stated on the bonds, they are willing to pay more than the face value of the bonds in order to acquire them, thus reducing their effective rate of interest below the stated rate.

For example:

Company X has issued 1000 bonds of $100 ($100,000) at face value on 1 Jan 2016. The bonds were issued for $108,000 and carry a coupon rate of 10% to be paid annually.  Have a maturity period of 5 yrs. the effective interest rate is 8%.

·         Journal entry  of Company X on date of issue ,1 Jan 2016:

 

Dr .Bank	108,000
Cr. premium on Bonds Payable	8000
Cr. Bonds Payable		100,000

 

·         Journal entry to record  interest payment :

Dr. Interest Expense (108,000 ×8%)	8640
Dr. premium on Bonds Payable	1360
Cr. Bank  (100,000×10%)		10,000

·         after 5 years Company X will record payment of face value at maturity as follows:

Dr. Bonds Payable	1,000,000
Cr. cash		1,000,000

 

 

 

(B)

 

·         Calculation of bond proceeds

 

The coupon payment semiannually = 100,000 × 7% × ½ = $3500

 

	$	$
Maturity value of bond payable		100,000
PV of  100,000 at 8% due to 5yrs ( i= 4% ,n=10)   ( 100,000 × 0.6756)	67560
PV of  3,500 semiannually for 5yrs at 8% annually ( i= 4% ,n=10)  (3,500 × 8.1109 )	28388
proceeds from sale of the bond		(95,948)
discount on bonds payable		4052

 

 

·         Schedule of bond discount amortization

                         

                               E I M – semiannual interest payment

                               5 yrs, 7 % bond sold to yield 8 %

Date	Cash paid $	Interest                       Expense $	Discount                   amortized $	Carrying of bonds $
1/1/2017				95,948
7/1/2017	3,500 a	3,837b	337 c	96,285d
1/1/2018	3,500	3,851	351	96,636
7/1/2018	3,500	3,865	365	97,001
1/1/2019	3,500	3,880	380	97,381
7/1/2019	3,500	3,895	395	97,776
1/1/2020	3,500	3,911	411	98,185
7/1/2020	3,500	3,927	427	98,614
1/1/2021	3,500	3,944	444	99,058
7/1/2021	3,500	3,962	462	99,520
1/1/2022	3,500	3,980	480	100,000
	35,000	39,052	4,052

 

 

A: 100,000 × 7% × 6/12 = $ 3,500

B: 95,948× 8% × 6/12 = $ 3,837

C: 3,837- 3,500 = $ 337

D: 95,948+ 337 = 96,286

 

 

(C)

 

·         Accordance  the issuance and amortization bond discount

 

 

·         record on date of issue ,1 Jan2017:

Dr .Cash	95,948
Cr. Bonds Payable		95,948

 

·          record amortization of discount and  first Interest expense on 1 July 2017:

 

Dr. Interest Expense	3,837
Cr. Bond discount		337
Cr. Cash		3,500

 

 

·          record amortization of discount and  interest expense accrued at 31 Dec 2017:

 

Dr. Interest Expense	3,851
Cr. Interest payable	3,500
Cr. Bond discount		351

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question3

 

·          Sole proprietorship

 

A sole proprietorship is a simple type of business structure that is owned and operated by the same person. It does not involve many of the complex filing requirements associated with other types of business structures such as corporations. Sole proprietorships allow persons to report business income and expenses on their individual tax returns.

Some of the main advantages of sole proprietorships include:

1-      Ease of formation: Starting a sole proprietorship is much less complicated than starting a formal corporation, and also much cheaper. Some states allow sole proprietorships to be formed without the double taxation standards applicable to most corporations. The proprietorship can be named after the owner, or a fictitious name can be used to enhance the business’ marketing.

2-      Tax benefits: The owner of a sole proprietorship is not required to file a separate business tax report. Instead, they will list business information and figures within their individual tax return. This can save additional costs on accounting and tax filing. The business will be taxed at the rates applied to personal income, not corporate tax rates.

3-      Employment: Sole proprietorships can hire employees. This can lead to many of the benefits associated with job creation, such as tax breaks. Also, spouses of the business owner can be employed without having to be formally declared as an employee. Married couples can also start a sole proprietorship, though liability can only assumed by one individual.

4-      Decision making: Control over all business decisions remains in the hands of the owner. The owner can also fully transfer the sole proprietorship at any time as they deem necessary.

Some disadvantages of sole proprietorships are:

1-      Liability: The business owner will be held directly responsible for any losses, debts, or violations coming from the business. For example if the business must pay any debts, these will be satisfied from the owner’s own personal funds. The owner could be sued for any unlawful acts committed by the employees. This is drastically different from corporations, wherein the members enjoy limited liability (i.e., they cannot be held liable for losses or violations)

2-      Taxes: While there are many tax benefits to sole proprietorships, a main drawback is that the owner must pay self-employment taxes. Also, some tax benefits may not be deductible, such as health insurance premiums for employees

3-      Lack of “continuity”: The business does not continue if the owner becomes deceased or incapacitated, since they are treated as one and the same. Upon the owner’s death, the business is liquidated and becomes part of the owner’s personal estate, to be distributed to beneficiaries. This can result in heavy tax consequences on beneficiaries due to inheritance taxes and estate taxes

4-      Difficulty in raising capital: Since the initial funds are usually provided by the owner, it can be difficult to generate capital. Sole proprietorships do not issue stocks or other money-generating investments like corporations do  

 

·         Corporation

 

 

A corporation is owned by shareholders; however, it is the corporation that is held accountable for its actions and debts. The shareholders are not legally liable for any debt that corporation incurs or actions that the corporation takes. Of all the structures of businesses available, the corporation is the most complex due to the selling of stocks and having shareholders.

 

The advantages of the corporation structure are as follows:

1-      Limited liability. The shareholders of a corporation are only liable up to the amount of their investments. The corporate entity shields them from any further liability.

 

2-      Source of capital. A publicly-held corporation in particular can raise substantial amounts by selling shares or issuing bonds.

 

3-      Ownership transfers. It is not especially difficult for a shareholder to sell shares in a corporation, though this is more difficult when the entity is privately-held.

 

 

4-      Perpetual life. There is no limit to the life of a corporation, since ownership of it can pass through many generations of investors.

The disadvantages of a corporation are as follows:

1-      Double taxation. Depending on the type of corporation, it may pay taxes on its income, after which shareholders pay taxes on any dividends received, so income can be taxed twice.

 

2-      Excessive tax filings. Depending on the type of corporation, the various types of income and other taxes that must be paid can add up to a substantial amount of paperwork.

 

3-      Independent management. If there are many investors having no clear majority interest, the management team of a corporation can operate the business without any real oversight from the owners.

 

 

4-      There are federal and state mandates that corporations must follow. For smaller corporations, family members are not allowed to sit on the board of directors at the same time.

 

 

In my opinion, I prefer take the sole proprietorships because are relatively easy to start up. Also, the owner is entitled to all the profit that the sole proprietorship collects and he make the decisions.