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

Working notes:-
1- Calculation of profit or Loss on sale of non current asset (property)
000$
Sale of property
000$
12
Cost of property
200
(-) Accumulated Depreciation
(170)
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
(30) NPV Disposal
(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
2
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)
Cr. Bonds Payable

1,000,000
1,000,000
Journal entry to record interest payment semiannually, 1 July 2016 :
Dr. Interest Expense (1,000,000×6%×1/2)
Dr .Cash
30,000
30,000
3

Journal entry to accrue interest expense of Company X
Dr. Interest Expense
Dr. Interest payaple

30,000
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
Cr. premium on Bonds Payable
Cr. Bonds Payable

108,000
8000
100,000
Journal entry to record interest payment :
Dr. Interest Expense (108,000 ×8%)
Dr. premium on Bonds Payable
Cr. Bank (100,000×10%)

8640
1360
10,000
after 5 years Company X will record payment of face value at maturity as follows:
Dr. Bonds Payable
Cr. cash
1,000,000
1,000,000
4
(B)

Calculation of bond proceeds
The coupon payment semiannually = 100,000 × 7% × ½ = $3500
$
Maturity value of bond payable
PV of 100,000 at 8% due to 5yrs ( i= 4% ,n=10)
( 100,000 × 0.6756)
PV of 3,500 semiannually for 5yrs at 8% annually ( i= 4% ,n=10)
(3,500 × 8.1109 )
proceeds from sale of the bond
discount on bonds payable

$
100,000
67560
28388
(95,948)
4052
Schedule of bond discount amortization
Date
1/1/2017
7/1/2017
1/1/2018
7/1/2018
1/1/2019
7/1/2019
1/1/2020
7/1/2020
1/1/2021
7/1/2021
1/1/2022
E I M – semiannual interest payment
5 yrs, 7 % bond sold to yield 8 %
Cash paid $
Interest
Discount
Expense $
amortized $
3,500 a
3,500
3,500
3,500
3,500
3,500
3,500
3,500
3,500
3,500
35,000
3,837b
3,851
3,865
3,880
3,895
3,911
3,927
3,944
3,962
3,980
39,052
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
5
337 c
351
365
380
395
411
427
444
462
480
4,052
Carrying of
bonds $
95,948
96,285d
96,636
97,001
97,381
97,776
98,185
98,614
99,058
99,520
100,000
(C)

Accordance the issuance and amortization bond discount

record on date of issue ,1 Jan2017:
Dr .Cash
Cr. Bonds Payable

95,948
95,948
record amortization of discount and first Interest expense on 1 July 2017:
Dr. Interest Expense
Cr. Bond discount
Cr. Cash

3,837
337
3,500
record amortization of discount and interest expense accrued at 31 Dec 2017:
Dr. Interest Expense
3,851
Cr. Interest payable
Cr. Bond discount
3,500
351
6
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
7
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.
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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.
9

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