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    ENMG602 Week5 HW3

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    Issam Tamer
    The document summarizes the financial statements for Jimmy's Landscaping for 2003. It recognizes $120,000 in revenue from services. Expenses include $2,400 in interest, $35,000 in cost of goods sold, $3,600 in insurance, $10,000 in depreciation, and $40,000 in operating expenses. This results in net income of $29,000. The balance sheet shows $112,800 in cash, $40,000 in property and equipment, and total assets of $186,400. Total liabilities are $62,400 which includes a $40,000 bank loan. Total equities are $129,000 including $100,000 in common

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    ENMG602 Week5 HW3

    Uploaded by

    Issam Tamer
    6 views3 pages
    The document summarizes the financial statements for Jimmy's Landscaping for 2003. It recognizes $120,000 in revenue from services. Expenses include $2,400 in interest, $35,000 in cost of goods sold, $3,600 in insurance, $10,000 in depreciation, and $40,000 in operating expenses. This results in net income of $29,000. The balance sheet shows $112,800 in cash, $40,000 in property and equipment, and total assets of $186,400. Total liabilities are $62,400 which includes a $40,000 bank loan. Total equities are $129,000 including $100,000 in common

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    financial engineering

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    The document summarizes the financial statements for Jimmy's Landscaping for 2003. It recognizes $120,000 in revenue from services. Expenses include $2,400 in interest, $35,000 in cost of goods sold, $3,600 in insurance, $10,000 in depreciation, and $40,000 in operating expenses. This results in net income of $29,000. The balance sheet shows $112,800 in cash, $40,000 in property and equipment, and total assets of $186,400. Total liabilities are $62,400 which includes a $40,000 bank loan. Total equities are $129,000 including $100,000 in common

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    6 views3 pages

    ENMG602 Week5 HW3

    Uploaded by

    Issam Tamer
    The document summarizes the financial statements for Jimmy's Landscaping for 2003. It recognizes $120,000 in revenue from services. Expenses include $2,400 in interest, $35,000 in cost of goods sold, $3,600 in insurance, $10,000 in depreciation, and $40,000 in operating expenses. This results in net income of $29,000. The balance sheet shows $112,800 in cash, $40,000 in property and equipment, and total assets of $186,400. Total liabilities are $62,400 which includes a $40,000 bank loan. Total equities are $129,000 including $100,000 in common

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    ENMG602 – Introduction to Financial Engineering

    Week 5 – Assignment 3
    Submitted by: Issam Tamer – Charbel Tannous –
    Imad El Hachache

    a. The recognized revenue is equal to the value of landscaping services performed, which amounts to

    120,000$. The values reported in (e) and (f) are not considered as revenue.

    b. Total interest expenses that should be recognized in 2003 = Amount of money borrowed × interest rate

    ⇒ Total interest expenses that should be recognized in 2003 = 40,000 × 0.06 = 2,400$.

    c. Cost of goods sold in 2003 = Cost of materials purchased – cost of materials remaining

    ⇒ Cost of goods sold in 2003 = 45,000$ – 10,000$ = 35,000$.

    d. On January 2, 2003, the company made a payment for a 24-month insurance policy that will remain in effect

    for 2 years. By the end of 2003 and given that half of the policy period has passed, the insurance expense

    7,200$
    that the company should recognize = = 3,600$.
    2

    e. As reported in (g), the operating expenses are equal to 40,000$.

    f. The tractor was purchased for 50,000$ and had a lifetime of 5 years. Using straight line depreciation, the

    value of the tractor will decrease each year by 10,000$. The adjustment entry for depreciation is as follows:

    Depreciation Expenses …..................................... 10,000$

    Accumulated Depreciation ................................... 10,000$

    g. By applying the straight-line depreciation method, the book value of the tractor, one year after its purchase

    = 50,000$ – 10,000$ = 40,000$.

    h. The adjusting entry for the loan interest will be as follows:

    Interest Expenses …................................. 2,400$

    Interest Payable ….................................... 2,400$

    i. The total amount paid for the loan on June 30, 2004 = $40,000 + 40,000 × 0.06 + 40,000 × 0.06 ÷ 2 = 43,600$

    1
    j.

    Jimmy’s Landscaping, Inc.

    Income statement as of December 31, 2003


    Revenues 120,000$

    Expenses

    Interest expenses 2,400$

    Cost of goods sold 35,000$

    Insurance expenses 3,600$

    Depreciation expenses 10,000$

    Operating expenses 40,000$

    Total expenses 91,000$

    Net income 29,000$

    k. The retained earnings balance on December 31, 2003, is valued at 29,000$, and is considered a credit.

    l. Cash balance on December 31, 2003= 100,000$ + 40,000$ – 50,000$ + 100,000$ + 10,000$ – 35,000$ –

    7,2000$ – 45,000$ = 112,800$. The cash balance is an asset, and since debits increase assets, therefore the

    cash balance is considered a debit.

    m. The assets that will appear on the balance sheet, as of December 31, 2003, are listed in the table below.

    Assets

    Cash 112,800$

    Property, plant, and equipment (tractor net price) 40,000$

    Accounts receivable 20,000$

    Supplies 10,000$

    2
    Prepaid expenses (insurance) 3,600$

    Total assets 186,400$

    n. The total liabilities reported for December 31, 2003, are listed in the table below.

    Liabilities

    Note payable (bank loan) 40,000$

    Interest payable 2,400$

    Unearned revenue 10,000$

    Account payable 10,000$

    Total liabilities 62,400$

    o. The total equities reported for December 31, 2003, are listed in the table below.

    Equities

    Common stocks 100,000$

    Retained earnings 29,000$

    Total equities 129,000$

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