Business Cases Assignment | Get Paper Help

It assesses the following learning outcomes: • Critically understand the different components of the income statement. • Knowing how to properly report treasury stocks operations • Understand the differences between Income statement and statement of cash flow Business case (100 points) John Delivery services Ltd. Is a company dedicated to the delivery of merchandises purchased online The company started the year 2019 with a total fleet of 5 cars purchased on 1st of January 2018 for a total amount of € 100,000 and 3 trucks purchased on 1st of January 2017 for a total amount of 180,000€. All cars have an estimated useful life of 5 years whereas trucks have an estimated useful life of 6 years. All vehicles have a salvage value of 10% of its cost. The depreciation method is the straight line method. At 1st of January 2019 the accountant of the company realized that the useful life of the trucks should be lowered to 5 years in total taking into account the intensive use made of the vehicles. In order to be able to respond to the dramatic increase of job orders from the main clients, the company decides on 1st of March to acquire 10 new trucks for a total amount of € 500.000. The trucks will have a useful life of 5 years, and an estimated salvage value of 10%. The accountant of the company decided that regarding these last trucks purchased, the depreciation method should be the 200% declining balance method. To finance this acquisition, the company will issue 50.000 preferred stocks with €10 par value and 11% dividend rate. At 1st of January 2019, the owner’s equity section of the balance sheet of the company was composed as follows: • Common stock: 100,000 shares of 1 € par value common stock • Additional paid in Capital Common stock: € 150.000 • Retained earnings: €50.000 The 1st of April 2019, a tornado destroyed part of the company’s facilities, causing a total loss of € 57.000 On 1st of June 2019, John, a shareholder of the company decided to sale his 10% stake into the company. The company proceeded to the purchase of its own shares at a price per share of €10, a price 4 € above the market price. To finance this purchase the company took a 6% loan of €100,000. Interests are payable once a year every 1st of June During year 2019, the remaining expenses of the company were the following: Labor costs: • 26 drivers with an average salary of €2.100 / month. 12 of said drivers where hired on 1st of March 2019 , plus 30% social security taxes payable the 15 first days following each month • 1 Manager with a gross fixed salary of €60.000 / year plus 30% social security taxes payable the 15 first days following each month, and a bonus of 5% of the net income of the previous year. • 3 mechanics with an average salary of €1.850 / month Gasoline expense: € 350,000, all paid cash Insurance expense: €20,000 per month payable the first day of every quarter Depreciation expense (facilities): € 42.000 Miscellaneous: € 146,000 paid cash During the year 2019 the sales of the company amounted to €1,653,000. Consider that 9% of the company’s sales remain unpaid at 31st of December 2019 Income tax is payable each month of February at 25% rate on the net income of the previous year. The company began the year 2019 with a cash balance of €125,000 Net Income of year 2018 was €160,000 Prior to the stockholders meeting, John who owns 40% of the capital of the company comes to ask you about how the different issues commented above may affect the profitability of his investment into the company • Calculate the depreciation expense of the cars and trucks of the company for the year 2019. Explain your answers as well as the differences between the two methods used by the company, and how the new method of depreciation decided by the accountant will affect the net income of the company for the year 2019, and over the total useful life of the assets. (20points) • Prepare the journal entries for the acquisition of the treasury stocks. Explain your answer. (10 points) • Prepare a detailed income statement of the company showing the earning per share figure for each element of the Income statement. Explain your calculation. (40 points) 4.Prepare a statement of cash flow for each one of the three sections (operating, investing and financing activities) for the year 2019 using the direct method and calculate the cash balance at 31st of December (30 points

Task: Re-sit exam (100% of the Final grade)

You must answer all the questions in the proposed business case.

Formalities:

Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer.

Submission date: The assignment must be submitted on Turnittin no later than Sunday 24^th of May at 23h59

It assesses the following learning outcomes:

• Critically understand the different components of the income statement.
• Knowing how to properly report treasury stocks operations
• Understand the differences between Income statement and statement of cash flow

Business case (100 points)

John Delivery services Ltd. Is a company dedicated to the delivery of merchandises purchased online

The company started the year 2019 with a total fleet of 5 cars purchased on 1^st of January 2018 for a total amount of € 100,000 and 3 trucks purchased on 1^st of January 2017 for a total amount of 180,000€. All cars have an estimated useful life of 5 years whereas trucks have an estimated useful life of 6 years. All vehicles have a salvage value of 10% of its cost. The depreciation method is the straight line method.

At 1^st of January 2019 the accountant of the company realized that the useful life of the trucks should be lowered to 5 years in total taking into account the intensive use made of the vehicles.

In order to be able to respond to the dramatic increase of job orders from the main clients, the company decides on 1^st of March to acquire 10 new trucks for a total amount of € 500.000. The trucks will have a useful life of 5 years, and an estimated salvage value of 10%. The accountant of the company decided that regarding these last trucks purchased, the depreciation method should be the 200% declining balance method.

To finance this acquisition, the company will issue 50.000 preferred stocks with €10 par value and 11% dividend rate.

At 1^st of January 2019, the owner’s equity section of the balance sheet of the company was composed as follows:

• Common stock: 100,000 shares of 1 € par value common stock
• Additional paid in Capital Common stock: € 150.000
• Retained earnings: €50.000

The 1^st of April 2019, a tornado destroyed part of the company’s facilities, causing a total loss of € 57.000

On 1^st of June 2019, John, a shareholder of the company decided to sale his 10% stake into the company. The company proceeded to the purchase of its own shares at a price per share of €10, a price 4 € above the market price.

To finance this purchase the company took a 6% loan of €100,000. Interests are payable once a year every 1^st of June

During year 2019, the remaining expenses of the company were the following:

Labor costs:

• 26 drivers with an average salary of €2.100 / month. 12 of said drivers where hired on 1^st of March 2019 , plus 30% social security taxes payable the 15 first days following each month
• 1 Manager with a gross fixed salary of €60.000 / year plus 30% social security taxes payable the 15 first days following each month, and a bonus of 5% of the net income of the previous year.
• 3 mechanics with an average salary of €1.850 / month

Gasoline expense: € 350,000, all paid cash

Insurance expense: €20,000 per month payable the first day of every quarter

Depreciation expense (facilities): € 42.000

Miscellaneous: € 146,000 paid cash

During the year 2019 the sales of the company amounted to €1,653,000. Consider that 9% of the company’s sales remain unpaid at 31^st of December 2019

Income tax is payable each month of February at 25% rate on the net income of the previous year.

The company began the year 2019 with a cash balance of €125,000

Net Income of year 2018 was €160,000

Prior to the stockholders meeting, John who owns 40% of the capital of the company comes to ask you about how the different issues commented above may affect the profitability of his investment into the company

1. Calculate the depreciation expense of the cars and trucks of the company for the year 2019. Explain your answers as well as the differences between the two methods used by the company, and how the new method of depreciation decided by the accountant will affect the net income of the company for the year 2019, and over the total useful life of the assets. (20points)
2. Prepare the journal entries for the acquisition of the treasury stocks. Explain your answer. (10 points)
3. Prepare a detailed income statement of the company showing the earning per share figure for each element of the Income statement. Explain your calculation. (40 points)

4.Prepare a statement of cash flow for each one of the three sections (operating, investing and financing activities) for the year 2019 using the direct method and calculate the cash balance at 31^st of December (30 points)

Rubrics (The professor is required to adapt this to the Task’s circumstances).