Brand name: Infinix Motors

Description of the company: High performance car company, intended to design cars for racing.

The resource requirements:

1. Skilled labor ( Racing engineers, Assembly line workers, Design specialists)

2. Manufacturing equipment and Capital
3. Storage space and Headquarter space
4. Software design and IT

Opening Statement of Financial Position (Balance Sheet)

Liabilities and Assets

Equity

Current Liabilities Current Assets

Accounts Payable $3,000,000 Cash $10,000,000

Short-term Loan $1,500,000 Accounts Receivable $1,500,000

Total Current $4,500,000 Inventory $7,000,000

Liabilities

Non-current Total Current $18,500,000

Liabilities Assets

Long-term Notes $5,000,000 Non-current Assets

Payable

Total Non-current $5,000,000 Property, Plant, $10,000,000

Liabilities Equipment

Equity Total Non-current $10,000,000

Assets

Ordinary Shares $15,000,000 Total Assets $28,500,000

Retained Earnings $4,000,000

Total Liabilities and $28,500,000

Equity
 1. Issuance of Ordinary shares

Dr. Cash………15,000,000
Cr. Ordinary Shares……….15,000,000

2. Purchase of Property Plant and Equipment ( Half financed via long term loan)

Dr. Property plant and Equipment……….. 10,000,000

Cr. Cash………………………………………………………………5,000,000
Cr. Long-term Notes Payable…………………………………………………………5,000,000

3. First Cash Deposit

Dr. Cash………………………………..10,000,000
Cr. Retained Earnings………………………………..10,000,000

4. Purchase of Inventory

Dr. Inventory……………..7,000,000
Cr. Cash…………………………………1,000,000
Cr. Accounts Payable………………….6,000,000

5. Accounts Receivable

Dr. Accounts Receivable…………..1,500,000

Cr. Sales Revenue…………………………….1,500,000

20 Transactions within the First Year

1. Purchase raw materials for $3,000,000 on credit.

2. Sell race cars for $6,000,000 on credit.
3. Ship vehicles to customers, shipping cost $100,000 paid in cash.
 4. Receive $4,500,000 from customers for previous credit sales.
5. Pay $2,000,000 to suppliers for raw materials purchased earlier.
6. Pay monthly rent of $100,000 in cash.
7. Pay salaries of $500,000 in cash.
8. Purchase additional manufacturing equipment for $2,000,000; $800,000 cash
and $1,200,000 financed.
9. Depreciation of manufacturing equipment for the year, $200,000.
10. Impairment loss on inventory, $150,000.
11. Interest payment on long-term notes payable, $200,000.
12. Pay dividends of $500,000.
13. Accrued utility expenses, $40,000.
14. Insurance premium paid in advance, $100,000 for one year.
15. Prepaid insurance expense for the year, $100,000.
16. Receive $200,000 for design services provided.
17. Return of defective materials, $50,000.
18. Write off uncollectible accounts receivable, $100,000.
19. Pay advertising expenses, $300,000.
20. Record tax expense, $600,000.

Journal entries for 20 transactions

1. Purchase of Raw Materials on Credit

Dr. Inventory………1,000,000

Cr. Accounts Payable……………1,000,000

2. Sale of Race Cars on Credit

Dr. Accounts Receivable……….2,000,000

Cr. Sales Revenue……………..2,000,000

3. Shipping costs paid in cash

Dr. Shipping Expense……………..50,000

Cr. Cash……………………………….50,000

4. Receive Cash from Customers

 Dr. Cash……………1,200,000

Cr. Accounts Receivable………….1,200,000

5. Paid suppliers for Raw Materials

Dr. Accounts Payable………..800,000

Cr. Cash……………………………………800,000

6. Paid monthly rent in Cash

Dr. Rent expense…………50,000

Cr. Cash…………………………50,000

7. Paid salaries in Cash

Dr. Salaries expense……………200,000

Cr. Cash…………………………………200,000

8. Purchased additional Manufacturing Equipment

Dr. Equipment…………………….1,000,000

Cr. Cash…………………………………….400,000

Cr. Notes Payable………………………….600,000

9. Depreciation of Manufacturing equipment

Dr. Depreciation expense…………………100,000

Cr. Accumulated Depreciation…………………...100,000

10. Impairment loss on Inventory

Dr. Impairment loss……………80,000

 Cr. Inventory……………………….80,000

11. Interest payment on Long Term Notes Payable

Dr. Interest Payable……………..100,000

Cr. Cash………………………………….100,000

12. Paid Dividends

Dr. Dividends………………200,000

Cr. Cash………………………..200,000

13. Accrued Utility expense

Dr. Utility expense…………….20,000

Cr. Utility Payable………………….20,000

14. Insurance Premium paid in advance

Dr. Prepaid Insurance………………50,000

Cr. Cash…………………………………..50,000

15. Prepaid Insurance Expense for the year

Dr. Insurance Expense………………….50,000

Cr. Prepaid Insurance………………………..50,000

16. Received Cash for Design services

Dr. Cash……………….100,000

Cr. Service Revenue…………..100,000

17. Returned Defective Materials

Dr. Accounts Payable……..30,000

Cr. Inventory…………………….30,000

18. Written off Uncollectible Accounts Receivable

Dr. Bad Debt expense……….40,000

Cr. Allowance for Doubtful accounts………40,000

19. Paid Advertising expense

Dr. Advertising expense…………..100,000

Cr. Cash…………………………………….100,000

20. Recorded Tax expense

Dr. Tax expense……………….300,000

Cr. Tax Payable……………………..300,000

Adjustments of Entries

1. Depreciation of Equipment

Dr. Depreciation expense………………100,000

Cr. Accumulated Depreciation……………….100,000

2. Amortization of Prepaid Insurance

Dr. Insurance expense………………50,000

Cr. Prepaid Insurance……………………..50,000

 3. Accrued Interest on Long-Term Notes Payable

Dr. Interest expense…………100,000

Cr. Interest Payable………………..100,000

Closing Entries at Year End

1. Closed Revenue Accounts to Income Summary

Dr. Sales Revenue……………….6,000,000

Dr. Service Revenue……………..200,000

Cr. Income Summary…………………….6,200,000

2. Closed expense accounts to Income Summary

Dr. Income Summary…….5,390,000

Cr. Costs of goods sold……………3,000,000

Cr. Rent expense………………………100,000

Cr. Salaries expense…………………..500,000

Cr. Shipping expense………………….100,000

Cr. Depreciation expense……………..200,000

Cr. Impairment loss…………………….150,000

Cr. Advertising expense……………….300,000

Cr. Utilities expense…………………….40,000

Cr. Insurance expense…………………100,000

Cr. Bad debt expense………………….100,000

Cr. Interest expense…………………...200,000

Cr. Tax expense………………………..600,000

 3. Close Income Summary to Retained Earnings

Dr. Income Summary……………………..810,000

Cr. Retained Earnings……………………………810,000

4. Close Dividends to Retained Earnings

Dr. Retained Earnings…………………….500,000

Cr. Dividends……………………………………..500,000

Income Statement for Infinix Motors

Revenue

Sales Revenue $6,000,000

Service Revenue $200,000

Total Revenue $6,200,000

Cost of Goods Sold $3,000,000

Gross Profit $3,200,000

Operating Expenses

Salaries Expense $500,000

Rent Expense $100,000

Shipping Expense $100,000

Depreciation Expense $200,000

Impairment Loss $150,000

Advertising Expense $300,000

Utilities Expense $40,000

Insurance Expense $100,000

Bad Debt Expense $100,000

Total Operating Expenses $1,590,000

Operating Income $1,610,000

Other Expenses

Interest Expense $200,000

Total Other Expenses $200,000

Income Before Taxes $1,410,000

Income Tax Expense $600,000

Net Income $810,000

Cash Flow Statement for Infinix Motors

Cash Flows from Operating Activities

Net Income $810,000

Depreciation Expense $200,000

Impairment Loss on Inventory $150,000

Bad Debt Expense $100,000

($3,000,000 - $1,500,000 =
(Increase) in Accounts Receivable
$1,500,000)

($7,000,000 - $150,000 -
Decrease in Inventory
$3,000,000 = $3,850,000)

Increase in Accounts Payable $6,000,000

Increase in Utilities Payable $40,000

Net Cash Provided by Operating Activities $4,550,000

Cash Flows from Investing Activities

($10,000,000 + $2,000,000
Purchase of Property, Plant, and Equipment
= $12,000,000)
Net Cash Used in Investing Activities ($12,000,000)

Cash Flows from Financing Activities

Proceeds from Issuance of Ordinary Shares $15,000,000

Proceeds from Long-term Notes Payable $5,000,000

($5,000,000 - $2,500,000 -
Repayment of Long-term Notes Payable
$1,200,000 = $1,300,000)

Dividends Paid ($500,000)

Net Cash Provided by Financing Activities $18,200,000

Net Increase in Cash and Cash Equivalents $10,750,000

Cash and Cash Equivalents at Beginning of the period $10,000,000

Cash and Cash Equivalents at End of the period $20,750,000