International Marketing - Assignment Example

Running header: International Marketing Student’s name: Instructor’s name: Subject code: Date of submission Question 1. Note: The inventory method that maximizes profit ought to give the highest closing stock hence this is the first in first out inventory method. In this case, the inventory for Toby is given by ; Total units purchases = 34,000 units, but only 26,000 units were sold, this implies that the remaining 8000 units have to have the highest cost so that this can lead to the highest gross profit due to both smaller cost of goods sold and higher value of closing stock. As such, the closing stock for the company is 8000*$7.2 = $57,600 On the other hand, to arrive at the lowest taxes, it means we have to have the lowest profits. This is given by the highest cost of goods sold and the lowest amount of closing stock. Hence, Warwick must use the first in last out inventory method to achieve this. This is given by 34,000-26,000 = 8,000 units in stock which should be in the first bunch to be purchased as it has the lowest price. Hence, the closing stock is given by; 8,000*$5 =$40,000 Note that all the units are bought at similar prices for both the companies. Therefore, the cost of goods available for sale is given by; Date Units Cost per unit Total Jan 2 10,000 $5 $50,000 Mar 6 6,500 $5.60 $36,400 Sept 15 8,000 $6.10 $48,800 Dec 10 9,500 $7.20 $64,800 Total 34,000 $200,000 But cost of goods sold is given by cost of goods available for sale less closing stock. Therefore, toby’s closing stock is given by; $200,000-57,600 =$142,400. On the other hand, Warwick’s closing stock is given by; $200,000-$40,000 = $160,000 To achieve the maximum profit, we have to have the least expenses and hence we have to use the depreciation method that leads to the least depreciation amount. For Toby therefore, we use the straight line method of depreciation. This is given by; Cost of machine =$150,000 Residual value =$20,000 Depreciation = $130,000 Life time = 10 years, Therefore annual depreciation = $13,000 On the other hand, to achieve the minimum amount of tax we have to have the highest amount of expenses and therefore we use the method that leads to the highest depreciation expense for War wick. This is the reducing balance method and is 1.5 times that of straight line method. Therefore if the straight line method gives us a depreciation expense of $13,000 per year, then the depreciation expense for Warwick will be given by; $13,000*1.5 = $19,500 The income statements for the companies will appear as shown below; Toby Salmon Inc. Income statement For the period ended 31st December 2014 Sales Revenue $375,000 Purchases $200,000 Less closing stock $57,600 Cost of goods sold ($142,400) Gross margin $232,600 Less expenses Operating expenses $95,000 Depreciation $13,000 Total expenses $108,000 Net income $124,600 Warwick Inc. Income statement For the period ended 30th December 2014 Sales revenue $375,000 Purchases $200,000 Less closing stock $40,000 Cost of goods sold $160,000 Gross margin $215,000 Less expenses Operating expenses $95,000 Depreciation expense $19,500 Total expenses $114,500 Net Income $100,500 From the above income statement, it is clear that Toby Salmon Inc. achieves the highest profits while Warwick achieved the lowest taxes since if the same rate was to be applied for both companies, Toby Salmon Inc. will pay higher tax than Warwick Inc. b) From the income statements prepared above, Toby Salmon Inc. has a reported net income of $124,600 for the year ended 31st December 2014 while Warwick Inc. has a reported net income of $100,500 during the same period. Therefore, Toby Salmon appears to be more profitable. It should however be noted that since both the businesses have achieved the same results with the difference only coming in in the application of alternative methods for inventory and depreciation, Toby Salmon Inc. will pay more tax than Warwick for the same results. In other words, Warwick will save money on the difference in income of $24,100. This implies that this business will have more cash for development equivalent to the cash amount saved. As such, I would prefer to invest in Warwick Inc. this is because the amount of money saved on tax over time will be invested for business growth. It means one can expect greater returns on their investment in future. However, this decision is made with the assumption that both methods used to arrive at profits are legal and hence acceptable. Question 2 Date Account Debit Credit 1st July 2014 Cash account Tom Smith capital account To record receipt of cash from Smith $7,000 $7,000 1st July 2014 Truck account Tom Smith Capital account To record receipt of truck from Tom Smith $12,500 $12,500 2nd July 2014 Supplies account Cash account To record payment of supplies in cash 350 350 3rd July 2014 Prepaid insurance account Cash account To record prepayment of insurance in cash $750 $750 4th July 2014 Cash account Delivery service revenue To record receipt of delivery service revenue in cash $900 $900 5th July 2014 Accounts receivable Delivery service revenue To record delivery service revenue receivable $1,700 $1,700 6th July 2014 Wages expense account Cash account To record payment of employee wages in cash $750 $750 8th July 2014 Cash Delivery service revenue To record receipt of delivery service revenue in cash $12,500 $12,500 9th July 2014 Cash account Advance service revenue To record delivery service revenue received in advance $700 $700 10th July 2014 Cash account Accounts receivables To record receipt or accounts receivables $1,700 $1,700 11th July 2014 Fuel expense account Accounts payable To record purchase of fuel on credit $750 $750 12th July 2014 Accounts receivable Delivery service revenue To record delivery service revenue receivable $1,050 $1,050 13th July 2014 Rent account Cash account To record payment of rent in cash $700 $700 14th July 2014 Accounts payable Cash account To record payment of accounts payable $750 $750 15th July 2014 Drawings account Cash account To record drawings by Tom Smith $2,900 $2,900 THE T ACCOUNTS Cash account Date Details Debit Date Details Credit 1/7/2014 Tom Smith Capital $7,000 2/7/2014 Supplies $350 4/7/2014 Delivery service revenue $900 3/7/2014 Prepaid insurance $750 8/7/2014 Delivery service revenue $12,500 6/7/2014 Wages expense $750 9/7/2014 Advance delivery service revenue $700 13/7/2014 Rent $700 10/7/2014 Accounts receivable $1,700 14/7/2014 Accounts payable $750 15/7/2014 Drawings $2,900 15/7/2014 Balance c/d $16,600 $22,800 $22,800 Tom Smith Capital account Date Details Debit Date Details Credit 1/7/2014 Cash $7,000 15/7/2014 Balance c/d $19,500 1/7/2014 Truck $12,500 $19,500 $19,500 Worksheet Workings Accounts receivables Date Account Debit Credit Balance 5/7/2014 Delivery service revenue $1,700 $1,700 10/7/2014 Cash $1,700 - 12/7/2014 Delivery service revenue $1,050 $1,050 Accounts payable 11/7/2014 Fuel expense $750 $750 14/7/2014 Cash 750 - Delivery service revenue 4/7/2014 Cash $900 $900 5/7/2014 Accounts receivables $1,700 $2,600 8/7/2014 Cash $12,500 $15,100 12/7/2014 Accounts receivable $1,050 $16,150   Trial balance   adjustments   adjusted trial balance   Income statement   Balance Sheet     Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit Cash 16600       16600       16600   Accounts receivable 1050       1050       1050   prepaid insurance 750     250 500       500   Supplies 350     140 210       210   Trucks 12500     210 12290       12290   Accounts payable   0     0           Unearned revenue   700 200     500       500 Capital   19500     0 19500       19500 Drawings 2900       2900       2900   Delivery service revenue   16150   200 0 16350   16350     Salaries and wages 750   750   1500   1500       Rent expense 700       700   700       fuel expense 750       750   750       Supplies expense     140   140   140       Insurance expense     250   250   250       Accrued salary expense       750 0 750       750 Depreciation expense     210   210   210         36350 36350 1550 1550 37100 37100 3550 16350     Net income             12800     12800               16350 16350 33550 33550 Tom’s Trucks Income statement For the month ended 31st July 2014 Delivery service Revenue $16,350 Less expenses Salaries and wages $1,500 Rent expense $700 Fuel expense $750 Supplies expense $140 Insurance expense $250 Depreciation expense $210 $3,550 Net income $12,800 Tom’s Trucks Balance Sheet As at 31st July 2014 Assets Fixed Assets Truck $12,500 Accumulated depreciation $210 $12,290 Total fixed assets $12,290 Current assets Cash $16,600 Accounts receivables $1,050 Prepaid insurance $500 Supplies $210 Total current assets $18,360 Total assets $30,650 Liabilities Current liabilities Unearned revenue $500 Accrued wages $750 Total current liabilities $1,250 Long term liabilities Total liabilities $1,250 Net assets $29,400 Owner’s equity Capital $19,500 Retained income $12,800 Less drawings ($2,900) $29,400 Tom’s Trucks Adjusting entries For the month of July 2014 Date Account Debit Credit 31/7/2014 Salary expense account Accrued salary expense account To record accrued salary expense $750 $750 31/7/2015 Depreciation expense Accumulated depreciation expense account To record depreciation expense $210 $210 31/7/2015 Insurance expense Prepaid insurance expense To record insurance expense for July 31/7/2014 Supplies expense Supplies To record supplies expense 140 140 31/7/2011 Unearned service revenue Service revenue To record unearned service revenue earned 200 200 Date Account Debit Credit 31/7/2014 Delivery Service Revenue Income summary $16,350 $16,350 31/7/2014 Income summary Salaries and wages Insurance expense Depreciation expense Supplies expense Fuel expense Rent expense $3,550 $1,500 $250 $210 $140 $750 700 31/7/2014 Income summary Retained earnings $12,800 $12,800 Tom’s Trucks Post-closing trial balance For the month of July 2014 Debit Credit Cash $16,600 Accounts receivables $1,050 Office supplies $210 Prepaid insurance $500 Trucks $12,500 Drawings $2,900 Accumulated depreciation $210 Accrued salary $750 Unearned Delivery service revenue $500 Tom smith capital $19,500 Retained earnings $12,800 Total $33,760 $33,760 References: Jared, B2014, Advanced financial accounting, London, Rutledge. 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