Question 6 [6 marks]Blue Ltd, a mid-sized company specialising in providing technology solutions for small businesses. At the beginning of the period, the company had a Cash balance of $105,000, Accounts Receivable balance of $61,000 and Accounts Payable balance of $52,000. Throughout the year ended 30 June 2025, the following events occurred for Blue Ltd: i. A three-year loan was acquired on 1 January 2025 for $100,000 at 6% interest, with both principal and interest to be paid at the end of the loan term, providing necessary capital for expansion and development projects.ii. Purchased $170,000 inventory on credit from a
supplier. iii. Paid wages of $74,000 and owed employees another $15,000 in wages that were owing for work performed during the year. iv. Credit sales of $180,000; Cost of Goods sold $110,000, reflecting the sale of technology products to various clients. v. Collected $175,000 owed from customers. vi. Received payment of $40,000 for consulting work, which half has been completed by the end of the accounting period. vii. Paid suppliers $115,000 on the amount owing.Required:Given the information above, answer the following questions:a. What amount of revenue would be recognised in the Income Statement for the period ending 30 June 2025? [2 marks]b. What amount of expenses would be recognised in the Income Statement for the period ending 30 June 2025? [2 marks]c. What is the closing balance of Accounts Receivable account that would be recognised in the Balance Sheet as at 30 June 2025? [2 marks]

Question

Question 6 [6 marks]Blue Ltd, a mid-sized company specialising in providing technology solutions for small businesses. At the beginning of the period, the company had a Cash balance of $105,000, Accounts Receivable balance of $61,000 and Accounts Payable balance of $52,000. Throughout the year ended 30 June 2025, the following events occurred for Blue Ltd: i. A three-year loan was acquired on 1 January 2025 for $100,000 at 6% interest, with both principal and interest to be paid at the end of the loan term, providing necessary capital for expansion and development projects.ii. Purchased $170,000 inventory on credit from a
supplier. iii. Paid wages of $74,000 and owed employees another $15,000 in wages that were owing for work performed during the year. iv. Credit sales of $180,000; Cost of Goods sold $110,000, reflecting the sale of technology products to various clients. v. Collected $175,000 owed from customers. vi. Received payment of $40,000 for consulting work, which half has been completed by the end of the accounting period. vii. Paid suppliers $115,000 on the amount owing.Required:Given the information above, answer the following questions:a. What amount of revenue would be recognised in the Income Statement for the period ending 30 June 2025? [2 marks]b. What amount of expenses would be recognised in the Income Statement for the period ending 30 June 2025? [2 marks]c. What is the closing balance of Accounts Receivable account that would be recognised in the Balance Sheet as at 30 June 2025? [2 marks]

BlackTom AI · Accepted Answer

Question restatement and setup: We’re evaluating Blue Ltd’s period ending 30 June 2025, given initial balances and events throughout the year. The tasks are (a) revenue recognised in the income statement, (b) expenses recognised, and (c) closing accounts receivable balance. I will step through each item methodically and show how the numbers are derived from accrual accounting rules.

a) Revenue recognised in the Income Statement for the period ending 30 June 2025
- Start from what generates revenue: credit sales of 180,000 clearly produce revenue for the period. 
- Consider consulting work: 40,000 was received in cash for consulting work, and half of that work was completed by period end. Under percentage-of-completion revenue recognition, revenue recognised equals the portion of work completed, which is 50% of 40,000 = 20,000. The other 20,000 would typically be recorded as unearned (deferred) revenue if not yet earned. 
- Sum of revenues: 180,000 (credit sales) + 20,000 (consulting revenue recognized from the completed portion) = 200,000. 
- Note: The cash collection of 40,000 does not add to revenue directly beyond what is recognized via completion; it affects cash and possibly an unearned revenue liability for the portion not yet earned, but it does not increase revenue beyond the 20,000 recognized from the consulting portion.

b) Expenses recognised in the Income Statement for the period ending 30 June 2025
- Cost of Goods Sold (COGS) is 110,000, which is expensed as incurred in relation to the sale of inventory. 
- Wages: total wages expense for the period includes wages paid during the year (74,000) plus wages owed for work performed during the year (15,000). Under accrual accounting, both payments made and accrued wages for services received in the period are expensed in the period. So wages expense = 74,000 + 15,000 = 89,000. 
- Interest expense on the loan: the loan is 100,000 at 6% and was taken on 1 January 2025 with interest payable at the end of the term. For the six months from 1 January to 30 June, interest expense recognized would be 6% of 100,000 for half a year = 3,000. Principal payments are not expensed—only the interest relates to period expense. 
- Total expenses recognised = 110,000 (COGS) + 89,000 (wages) + 3,000 (interest) = 202,000.

c) Closing balance of Accounts Receivable (AR) as at 30 June 2025
- Beginning AR balance: 61,000. 
- Credit sales during the year: +180,000 increases AR. 
- Cash collections from customers: -175,000 decreases AR. 
- Consulting revenue cash receipt of 40,000 does not automatically affect AR in the period when part of that work is earned; cash receipts affect cash and may create or reduce unearned revenue, but AR is affected by sales on credit and collections. Since we’re given net effects in terms of credit sales and collections, AR calculation uses those flows: 61,000 + 180,000 − 175,000 = 66,000. 
- Therefore, the closing AR balance is 66,000.

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