Superstar Ice

Rinks Inc.
Financial
Statement
As of June 30, 2017
Sudin Garai and Eghie Akhigbe

Part 1-4:
SIRs Journal Entries (Pre-Adjusting)
These steps are to record Superstar Ice Rinks transactional, adjustments and closing journal and ledger
entries.
Preparing Journal Entries
Property and Equipment
Cash
1
Long Term Debt
Common Shares

(asset+)
(asset-)
(liability+)
(shareholder's equity+)

Debit
4,750,000

Credit
1,622,000
1,875,000
1,253,000

To record SIR's purchase of arena for $4,750,000

Cash
Accounts Receivable
Sales (Renting Ice)
2
Sales (shop & Restaurant)
Cash
Accounts Receivable

(asset+)
(asset+)
(shareholder's equity+)
(shareholder's equity+)
(asset+)
(asset-)

Debit
6,920,000
625,000

Credit

5,820,000
1,725,000
614,000
614,000

To record SIR's earnings from Sales

Cash
3 Unearned Revenue

(asset+)
(liability+)

Debit
1,310,000

Credit
1,310,000

To record money deposited to SIR for future use

Debit
21,250

Wages Payable
Cash
4
Wages Expense
Wages Payable

(asset-)
(expense+, shareholder's equity-)
(liability+)

Credit
1,062,000

1,076,000
35,250

To record Wages related transactions

Current Portion of Long Term Debt

Cash

(liability-)
(asset-)

To record pay of Long term Debt

Debit
937,500

Credit
937,500

Debit
Cash
6 Interest Payable
Interest Expense

(asset-)
(liability-)
(expense+, shareholder's equity-)

Credit
563,000

31,250
531,750

To record Interest related expenses

Preparing Journal Entries

Inventory
Accounts Payable
Accounts Payable
Cash

(asset+)
(liability+)
(liability-)
(asset-)

Debit
756,000

Credit
756,000

750,000
750,000

To record SIR's purchase of inventory

Goods & Services

Accounts Payable
Accounts Payable
Cash

(expense+, shareholder's equity-)

(liability+)
(liability-)
(asset-)

Debit
1,969,000

Credit
1,969,000

1,938,000
1,938,000

To record SIR's purchase of goods and services

Additional Expenses
Cash

(expense+, shareholder's equity-)

(asset-)

Debit
375,000

Credit
375,000

To record SIR's additional expenses

10 Tax Payable
Cash
Tax Expense

(liability-)
(asset-)
(expense+, shareholder's equity-)

Debit
115,000

Credit
179,000

64,000

To record SIR's Tax expenses

11 Goods & Services

Sales

(expense+, shareholder's equity-)

(shareholder's equity+)

To record SIR's services taken against renting their ice

Debit
26,000

Credit
26,000

SIRs Ledger Entries or T-Account (Pre-Adjusting)

ASSETS
Cash
Bal
1
2
2
3
4
5
6
7
8
9
10

Accounts Receivable

1,987,500

1,622,000
6,920,000
614,000
1,310,000

Bal
2
2

Inventory
Bal
7

62,500

625,000

210,000

756,000

614,000

1,062,000
937,500
563,000
750,000
1,938,000
375,000
179,000

Property, Plant,
Equipment
Bal
1

18,750,000

Bal

Accumulated
Depreciation
4,875,000

4,750,000

LIABILITIES

Bal

Bank Loan
225,000

Bal
10

Taxes Payable
115,000
115,000

Bal
7
7
8
8

Accounts Payable
181,250
756,000
750,000
1,969,000
1,938,000

Bal
6

Interest Payable
31,250
31,250

Bal
4
4

Wages Payable
21,250
21,250
35,250

Bal
3

Unearned Revenue
1,218,750
1,310,000

Bal
5

Current portion of LTD

937,500
937,500

Bal
1

LTD (Long Term Debt)

7,326,250
1,875,000

OWNER'S EQUITY

Bal
1

Common Shares
4,706,250
1,253,000

Bal

Cost of Sales
Bal

Bal
4

64,000

Goods & Service

Bal
8
11

1,969,000
26,000

Sales
Bal
2
2
11

Wages Expense

Tax Expense
Bal
10

Retained Earnings
1,372,500

Depreciation Expense
Bal

1,076,000

Interest Expense
Bal
6

5,820,000
1,725,000
26,000

531,750

Additional Expense
Bal
9

375,000

SIRs Journal Entries (Adjusting)

Preparing Adjusting Journal Entries

12

Long Term Debt

Current Portion of Long Term Debt

(liability-)
(liability+)

Debit
1,125,000

Credit
1,125,000

Adjusting the Current Portion of Long Term Debt

13

Cost of Sales
Inventory

(expense+, shareholder's equity-)

(asset-)

Debit
765,000

Credit
765,000

Adjusting cost of goods sold

14

Tax Expense
Taxes Payable

(expense+, shareholder's equity-)

(liability+)

Debit
42,000

Credit
42,000

Adjusting the taxes payable

15

Depreciation Expense
Accumulated Depreciation

(expense+, shareholder's equity-)

(asset-)

Adjusting the depreciation

Debit
1,563,000

Credit
1,563,000

SIRs Ledger Entries or T-Account (Post-Adjusting)

ASSETS
Cash
Bal
1
2
2
3
4
5
6
7
8
9
10
Bal

Accounts Receivable

1,987,500

1,622,000
6,920,000
614,000
1,310,000

Bal
2
2

625,000

Bal

73,500

Inventory

62,500

614,000

Bal
7
13

210,000

Bal

201,000

756,000
765,000

1,062,000
937,500
563,000
750,000
1,938,000
375,000
179,000
3,405,000

4,750,000

Bal
15

Accumulated
Depreciation
4875000
1,563,000

23,500,000

Bal

6,438,000

Bal
4
4

Wages payable
21,250
21,250
35,250

Bal

35,250

31,250

Bal
3

Unearned revenue
1,218,750
1,310,000

Bal

2,528,750

Property, Plant, Equipment

Bal
1

18,750,000

Bal

LIABILITIES
Bank loan
Bal

225,000

Bal
7
7
8
8

Accounts Payable
181,250
756,000
750,000
1,969,000
1,938,000

Bal

225,000

Bal

218,250

Bal
10
14

Taxes payable
115000
115,000
42,000

Bal
6

Bal

42,000

Bal

Interest payable
31,250

Bal
5
12

Current portion of LTD

937,500
937,500
1,125,000

Bal
1
12

LTD (Long Term Debt)

7,326,250
1,875,000
1,125,000

Bal

1,125,000

Bal

8,076,250

OWNER'S EQUITY

Bal
1

COMMON SHARES
4,706,250
1,253,000

Bal

Bal

5,959,250

Bal

Cost of Sales
Bal
13

Bal

765,000

765,000

Bal

Tax Expense
64,000
42,000

Bal

106,000

Goods & Service

Bal
8
11

1,969,000
26,000

Bal

1,995,000

1,372,500

Sales
Bal
2
2
11

5,820,000
1,725,000
26,000

Bal

7,571,000

Wages Expense
Bal
4

Bal
10
14

Retained Earnings
1,372,500

Depreciation Expense

1,076,000

Bal
15

1,563,000

1,076,000

Bal

1,563,000

Interest Expense
Bal
6

Bal

Additional Expense

531,750

Bal
9

375,000

531,750

Bal

375,000

SIRs Trial Balance

Cash
Accounts Receivable
Inventory
Property, Plant and Equipment
Accumulated Depreciation
Bank Loan
Accounts Payable
Wages Payable
Taxes Payable
Interest Payable
Unearned Revenue
Current Portion of Long Term
Debt
Long Term Debt
Common Shares
Retained Earnings
Sales
Cost of Sales
Wages Expense
Depreciation Expense
Tax Expense
Interest Expense
Additional Expense
Goods & Service

Debits
3,405,000
73,500
201,000
23,500,000

Credits

6,438,000
225,000
218,250
35,250
42,000
0
2,528,750

Balance
Sheet
Accounts

1,125,000
8,076,250
5,959,250
1,372,500
7,571,000
765,000
1,076,000
1,563,000
106,000
531,750
375,000
1,995,000
33,591,250

Income
Statement
Accounts
33,591,250

SIRs Ledger Entries or T-Account (Post-Closing)

ASSETS
Cash
Bal
1
2
2
3
4
5
6
7
8
9
10
Bal

Accounts Receivable

1,987,500

1,622,000
6,920,000
614,000
1,310,000

Bal
2
2

625,000

Bal

73,500

Inventory

62,500

614,000

Bal
7
13

210,000

Bal

201,000

756,000
765,000

1,062,000
937,500
563,000
750,000
1,938,000
375,000
179,000
3,405,000

4,750,000

Bal
15

Accumulated
Depreciation
4875000
1,563,000

23,500,000

Bal

6,438,000

Property, Plant, Eqipment

Bal
1

18,750,000

Bal

LIABILITIES
Bank loan
Bal

225,000

Bal
7
7
8
8

Accounts payable
181,250
756,000
750,000
1,969,000
1,938,000

Bal
4
4

Wages payable
21,250
21,250
35,250

Bal

225,000

Bal

218,250

Bal

35,250

Bal
10
14

Taxes payable
115000
115,000
42,000

31,250

Bal
3

Unearned revenue
1,218,750
1,310,000

Bal
6

Bal

42,000

Bal

Bal

2,528,750

Interest payable
31,250

Bal
5
12

Current portion of LTD

937,500
937,500
1,125,000

Bal
1
12

LTD (Long Term Debt)

7,326,250
1,875,000
1,125,000

Bal

1,125,000

Bal

8,076,250

OWNER'S EQUITY

Bal
1

COMMON SHARES
4,706,250
1,253,000

Bal

Bal

5,959,250

Bal

Retained Earnings
1,372,500

1,372,500

Sales
Bal
2
2
11

5,820,000
1,725,000
26,000

Bal

7,571,000
7,571,000

Bal
Cost of Sales
Bal
13

765,000

Bal

765,000

Wages Expense
Bal
4

1,076,000

Bal

1,076,000

765,000
Bal

Tax Expense
Bal
10
14

64,000
42,000

Bal

106,000
0

1,563,000

Bal

1,563,000
1,563,000

Bal

Interest Expense
Bal
6

531,750

Bal

531,750

106,000
Bal

Depreciation Expense
Bal
15

1,076,000
Bal

Additional Expense
Bal
9

375,000

Bal

375,000

531,750
Bal

375,000
Bal

Goods & Service

Bal
8
11

1,969,000
26,000

Bal

1,995,000

Bal

1,995,000

SIRs Journal Entries (Post-Closing)

Preparing Journal Entries
Debit
Sales
Cost of Sales

16

Credit

7,571,000
765,000

Wages Expense

1,076,000

Depreciation Expense

1,563,000

Tax Expense
Interest Expense
Additional Expense
Goods & Services
Retained Earnings

106,000
531,750
375,000
1,995,000
1,159,250

SIRs Post-Closing Trial Balance

Cash
Accounts Receivable
Inventory
Property, Plant and Equipment
Accumulated Depreciation
Bank Loan
Accounts Payable
Wages Payable
Taxes Payable
Interest Payable
Unearned Revenue
Current Portion of Long Term
Debt
Long Term Debt
Common Shares
Retained Earnings
Sales
Cost of Sales
Wages Expense
Depreciation Expense
Tax Expense
Interest Expense
Additional Expense
Goods & Service

Debits
3,405,000
73,500
201000
23,500,000

Credits

6,438,000
225,000
218,250
35,250
42,000
0
2,528,750

Balance
Sheet
Accounts

1,125,000
8,076,250
5,959,250
2,531,750
0
0
0
0
0
0
0
0
27,179,500

Income
Statement
Accounts
27,179,500

SIRs Balance Sheet

Superstar Ice Rinks Inc.
Balance Sheet
As of June 30, 2017
Assets
Cash
Accounts Receivable
Inventory
Property, Plant and Equipment
Accumulated Depreciation

Liability
3,405,000 Bank Loan
73,500 Accounts Payable
201,000 Wages Payable
Taxes Payable
23,500,000 Interest Payable
(6,438,000) Unearned Revenue
Current Portion of Long Term Debt
Long Term Debt

Common Shares
Retained Earnings
20,741,500

225,000
218,250
35,250
42,000
0
2,528,750
1,125,000
8,076,250

5,959,250
2,531,750
20,741,500

Superstar Ice Rinks Inc.

Income Statement and Statement of Retained Earnings
For Year Ended June 30, 2017
Sales
Cost of Sales
Gross Margin
Expenses
Wages Expense
Depreciation Expense
Interest Expense
Additional Expense
Goods & Services
Total Expenses
Income before Taxes
Tax Expense
Net Income
Retained Earnings at the beginning of the year:
Retained Earnings at the end of the year:

7,571,000
765,000
6,806,000
1,076,000
1,563,000
531,750
375,000
1,995,000
5,540,750
1,265,250
106,000
1,159,250
1,372,500
2,531,750

Part 5:
The question says 'comment on the company's cash position and its use of cash'
Answer: The company is in a better shape cash wise, as reflected in its cash position in 2017, which
increased over what it was in 2016.( $3,405,000 in 2017 vs N1,987,500), this shows that the company is
generating as lot of cash and as such will be able to meet up with its short and long term obligation
when they fall due(assuming the trend continues), this cash position has been enhanced by the fact that
expansion of its operations are not always funded by cash as evidenced in the purchase of an existing
property they made in the course of the year, that acquisition was funded through various sources
namely: long term loans, shares and partly cash. Over the last year the company has also reduced its
cash purchases as evidenced by growing account payable balances, as it enjoys favorable credit terms
with its suppliers, because they do not have to always pay cash for their purchases, they can afford to
hold higher cash balances in their books.
Overall, the company is a growing company that is using cash generated from its operations and cash
from borrowing/or sale of equity to expand.

Part 6:
From looking at the company's financials, it is safe to say that the company is young and growing
company with huge income potentials. Its liquidity position is healthy as current ratio is at 12.1,
indicating that it has enough current assets to meet up with its maturing obligations as/when they fall
due. Taking that ratio further and trying to see how liquid it will be if all other current assets are
removed, shows no marked difference in quick ratio, as the company does not hold a lot of stock, and its
account receivables are also within manageable limits, its cash position alone can still conveniently
cover all its imminent obligations as at/when they fall due. The company seems to be doing well with its
suppliers as evidenced by an increase in account payable over last year. This tells us is that its suppliers
are offering the company favorable credit terms as against cash payment. Their operations is also been
enhanced by customers who are making advanced payments for services yet to be enjoyed, which
enhances their liquidity position as the company enjoys spontaneous financing (meaning they use their
customers fund to trade as against using their own funds).
Our major concern is the fact that its long term debt is bit high (N8.09M), which is like 45% of the total
value of the balance sheet, although the comfort we have is that it was used to purchase equipment
that is being used for the expansion of the business, and also this trend is normal for a growing business
looking to expand. If it continues along this path, we are confident it will pay down its loans, and
continue to grow profit.
Overall, the company is profitable, as reflected by an increase in earnings from N1,372,500 in 2016 to
N2,531,750 in 2017. As an investor that gives us confidence that this company will be in business in the
foreseeable future.