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Andrew Darby manages and owns all the shares in a small proprietary company called Darby's Derbys Pty Ltd which buys and sells hats. The assets,
- Andrew Darby manages and owns all the shares in a small proprietary company called Darby's Derbys Pty Ltd which buys and sells hats. The assets, liabilities, and owner's equity of the business on 1 January 2018 are shown on the accompanying worksheet.
- The following information about Darby's Derbys Ltd is available:
- · The business has an accounting period of one month. It determines profit or loss for each month on its worksheet following proper accrual principles.
- · The opening balance in the prepayments column relates to rent for the months of January, February, and March 2018 which was paid in December 2017.
- · The accrual on 1 January relates to an amount owing for advertisements that appeared in the local newspaper in December 2017.
- · The shop fittings owned by the business have an expected life of 8 years, and an expected residual value of $1 000 at the end of that time.
- The following transactions took place during January 2018:
- 1 The business borrowed $4 800 from Darby's sister. The loan is to be repaid in three year's time but interest at 5% per annum has to be paid (in arrears) each six months, starting on 1 July 2018.
- 2 Paid an insurance premium of $1 200 that will cover the business until 30 June 2018.
- 3 Received payment for accounts receivable $6 000.
- 6 Purchased hats on credit $12 000.
- 8 Credit sales of hats $14 000 (these hats had cost $9 000).
- 12 Paid wages of $1 400.
- 15 Cash sales of hats $5 000 (these hats had cost $3 000).
- 16 Paid the local newspaper for the advertisements that appeared in December 2017 and for some others which appeared in January 2018, total payment being $1 200.
- 20 Paid accounts payable $7 800.
- 25 Wrote off an account receivable to the value of $500 because it was accepted that the amount was never going to be paid.
- 26 Purchased shop supplies on credit $200 and paid wages of $1 400.
- 27 Received $600 from a customer for hats that are not going to be supplied until March.
- 31 Wages for work done in January but not yet paid amounted to $300. Shop supplies on hand at the end of January amounted to $100.
- Required
- a. Journal entries for the events that occurred in January and also record all the accrual accounting adjustments that are necessary to determine profit for the month. (Hint - you will need six adjustments including the two mentioned on 31 January.)
- b. an income statement, cash flow statement, and balance sheet on 31 January 2018.
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