ARAPSL

ASSIGNMENT 2 DETAILS Part A: Accounting Cycle [50 marks] Part A includes two questions. Both are compulsory. Question 1: Comfort Mattress Ltd. [25 marks] On 1 May 2017, Bree Smith opened a shop trading as Comfort Mattress Ltd. The shop currently sells one product only: queen-size memory form mattresses. Comfort Mattress Ltd. is registered for GST. Bree has set up the following accounting policies and procedures for her business. Accounting Records The business maintains the following accounting records: General Journal (GJ) - to record all transactions. General Ledger. Accounts Receivable subsidiary ledgers and schedule. Accounts Payable subsidiary ledgers and schedule. Accounting Procedures Comfort Mattress Ltd. has the following accounting procedures: Daily updates o All relevant source documents and transactions entered into the General Journal. o General journal entries posted to appropriate ledgers. o Subsidiary ledgers updated. Accounting for Company Tax The business does NOT accrue Income Tax until the end of the financial year. Accounting for GST The business has registered for GST with the Inland Revenue Department Part A - Question 1 continued over page... 8 (IRD). The GST rate is 15%. The business accounts for GST on an accrual basis, which means that GST is calculated and recorded when a tax invoice is issued/received or cash is received/paid, whichever event occurs first. There are two GST accounts, GST Paid and GST Collected. These are closed off against each other when the GST return is prepared and sent to the IRD on the 20th of the following month. Other Information Salaries are paid monthly on the 26th of each month with PAYE deductions paid to the IRD on the 10th of the following month. The business has a working week of five days (Monday - Friday inclusive). Part A - Question 1 continued over page... 9 ...Part A - Question 1 continued All prepayments are initially treated as assets and recorded at the full amount paid and adjusted at the end of each quarter. The business uses the perpetual inventory system. Bree has set up the following chart of accounts for her business: Account number 1100 1120 1125 1130 1140 1150 1160 1170 1210 1215 1220 1225 2110 2120 2130 2140 2150 2160 3110 3120 4000 4110 4115 4120 5110 5115 Account title Cash at Bank Accounts Receivable Allowance for Doubtful Debts Office Supplies Inventory Prepaid Insurance Prepaid Rent GST Paid Equipment Accumulated Depreciation - Equipment Computer Accumulated Depreciation - Computer Accounts Payable Accrued Expenses Interest Payable PAYE Payable GST Collected Bank Loan Contributed Equity Retained Earnings Profit & Loss Summary Sales Sales Returns & Allowances Discount Received Cost of Sales Interest Expense 5120 5130 5140 5150 5160 5170 5180 5190 Discount Allowed Rent Expense Utilities Expense Salaries Expense Bad Debts Expense Insurance Expense Office Supplies Expense Depreciation Expense ...Part A - Question 1 continued Notes: Refer to the Assignment 2 Part A Answer Booklet for subsidiary Accounts Receivable and Accounts Payable ledgers account numbers. Please note that your Part A assignment answer booklet excludes those of the above ledger accounts that are not relevant to Part A of the assignment. Comfort Mattress Ltd. completed the following transactions and events in the first month of its operation. May 2017 1 Sole shareholder (Bree) invested $50,000 cash. 1 Bree contributed a computer, fair value, $1,840 GST inclusive. 1 Paid rent for May and June, $1,200 plus GST (Chq. # 101). 1 Purchased equipment on account from Office World, $1,500 plus GST. 1 Comfort Mattress Ltd took out a loan of $6,000 from the BAZ bank for two years. The loan is to be repaid at the end of the loan term. The interest on the loan is due annually at a rate of 5% p.a., but paid on the first day of the following year. The interest is calculated on a monthly basis but not compounded. Purchased office supplies for cash $100 plus GST (Chq. # 102). Bought 200 mattresses on account at $500 each plus GST from Mattress Supplies; terms 2/10, n/30. Returned 5 defective mattresses purchased on 3 May and received a credit note from Mattress Supplies. Sold 100 mattresses on account at $720 each plus GST to Sleep Master (invoice #001); terms 2/7, n/30. Sleep Master returned 5 unwanted mattresses sold on 5 May. Bree issued a credit note to Sleep Master. The mattresses returned were 2 3 4 5 8 not faulty, therefore returned to inventory. 10 Received payment from Sleep Master in settlement of its account. 11 Paid the amount owed to Mattress Supplies (Chq. # 103). 15 Sold 10 mattresses at $780 each plus GST for cash. 22 Sold 40 mattresses on account at $740 each plus GST to All Sleep (invoice #002); terms 2/7, n/30. 26 Paid salaries (1-26 May), gross $2,500, PAYE $420 (Chq. #104). PAYE is payable on the 10th June. Comfort Mattress Ltd has a working week of 5 days (Mon - Fri inclusive). ...Part A - Question 1 continued Required: for the purpose of this question, always round to the nearest cent. i. Journalise all transactions of May in the General Journal. Include narrations. ii. Post relevant data to the appropriate ledgers and subsidiary ledgers as per Comfort Mattress Ltd's accounting procedures (no new accounts needed). iii. Complete the Accounts Receivable and Accounts Payable Schedules for Comfort Mattress Ltd. Ensure the totals of both schedules agree with the corresponding balance in the control accounts. 11