Question

8. The following is a summary of observations from the review of the trial balance and general ledger for
Lakeside Company for 2007 and 2008:’
#
Observations from Trial Balance and General Ledger
Comment on
Significance
1. The sales for Store Three have increased by approximately
94% since the previous year. At the same time, the cost of
the goods sold has dropped from 58.5% of sales (which is
consistent with the other stores) to only 50.3% of sales.
Also, the inventory held by this store has risen by over
50%.
2. There was a gain on disposition of fixed assets of $14,000.
3. The company's two bank credit lines now have a total
balance that exceeds the $750,000 maximum that was
indicated in the earlier case.
4. The long-term notes payable increased by $50,000.
5. Cash flow from operations declined significantly in 2008.

Answer 1

1.

particulars last year current year

sales 100% 194% (increased 94% of prev yr)

less:-

cost (58.5%) ( 97.58%) (194% *50.3%)

gross profit 41.5% 96.42%

diffrence of 54.92% of increase in profit on sales

cash flows increased here if sales of 2007 assumed as $10,00,000 is $5,49,200. (operational)

let 2007 inventory is $100000

increase in inventory is 50% i.e. $50000 i.e. decrease in cash flow ($50,000) (operational)

2.

let value of asset in 2007 is $50000

on disposal of asset $14000 gain i.e. $64000 cash inflow (investing activity)

3.

exceeding from previous balance of $750000 is cash inflow (finance activity)

4.

payable increaseof 50000$ decreases net income but increases cash balances