Psyche Books Ltd is a bookshop specialising in psychology textbooks. Psyche Books has the following balance sheet as at 30 September 2016:

Additional Information:
1. Psyche Books uses perpetual inventory systems and all its textbooks are sold at a 30 per cent mark-up.
2. Buildings are depreciated at 2.5 percent p.a.
3. Motor vehicle has a useful life of 10 years and is depreciated using the straight-line method.

The following events took place in October 2016:

At the end of the month the following events occurred:
Some of the stock of Psyche Books was recorded at $5000 but was established to have a net realisable value of $200.
Interest on bank loan accrued at the end of the month is $46 000.
Depreciation was charged to the buildings and motor vehicle at the end of the month.
Monthly rent for Psyche Books' head office was $5000 and is payable on the first of every month in advance.

e. Prepaid insurance was originally for two years, purchased on 1 January 2016.

f. The company policy is to keep allowance for doubtful debts at the end of the month equal to 3 percent of total credit sales for the month.

g. Owed salaries at the end of the month, $22 500.

h. Electricity charges for the month are estimated to be $2760; phone charges for the month are estimated to be $8900.

Required:
1. Prepare journal entries for the above transactions.
2. Enter the opening balances in the ledger accounts and post the journal entries to the ledger.
3. Prepare a 10-column worksheet.
4. Prepare and post the adjusting entries. Enter these entries into the worksheet.
5. Prepare pre-closing trial balance at 31 October 2016.
6. Prepare closing entries.
7. Prepare post-closing trial balance.
8. Prepare an income statement for the month of October 2016 and a balance sheet as at 31 October 2016.

Transcribed Image Text:

Account name Assets Current assets Account no. $ Cash 1010 Accounts receivable 1020 106000 161 400 Inventory 1040 251000 Prepaid insurance 1050 Prepaid rent 1060 12000 45000 Noncurrent assets Buildings 1100 1 400 000 Accumulated depreciation - buildings 1105 Motor vehicle 1200 Accumulated depreciation - motor vehicle 1205 Total assets (175000) 45 000 (9000) 1225000 36000 1807 600 Liabilities Current liabilities Accounts payable 2010 Interest payable 2020 Income tax payable 2030 94000 48 000 47 000 Salaries payable 2040 25000 Provision for employee entitlements 2050 14000 Accrued expenses 2060 12400 Noncurrent liabilities Bank loan 2100 900000 1140400 Shareholders' equity Share capital 3010 400000 Retained earnings 3020 267 200 Total liabilities and equity 1807 600