Chantel Ltd is a clothing wholesaler, which has been operating for only one year.

Chantel Ltd is a clothing wholesaler, which has been operating for only one year.

Team Assignment 1

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Part I – Recording Transactions and Preparing Financial Statements

Question 1: Chantel Ltd

Chantel Ltd is a clothing wholesaler, which has been operating for only one year.  At the beginning of its second year of operations, it has the following items on its balance sheet:

$

Fixed Assets

2,000

Cash

1,000

Share Capital

500

Retained Earnings

500

5 year Bank Loan

2,000

During the second year, the company undertakes the following transactions:

Purchases stock (clothing) for $500, on credit.
Sells stock, which originally cost $500, for $1,200.  Half of the customers buy on credit and the other half pays in cash.
Pays $100 for advertising and $50 for insurance.  The advertising is paid in cash, but the insurance agency gives credit.
Purchases a new storage facility for $800, on credit.
Pays the warehouse employees $100 in cash.
Pays interest of 10% on its loan, in cash.
Pays $500 to its trade creditors.
Receives $300 from its customers.
Chantel’s accountant calculates that as a result of the above transactions, the company will have to pay tax of $100.
Finally, the board of directors decides to pay a dividend of $75 (the dividend is not paid by the end of the fiscal year).
On the following page, you are given a worksheet for Chantel’s second fiscal year.  Fill in the opening balances (from the end of the first year) and record the transactions during the second year. Calculate closing balances and then, using the formats given, construct a closing balance sheet and an income statement.