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BACKGROUND Scallion Ltd began business on 1 July 2 0 2 2 , specialising in the purchase and supply of packaging materials. An accounting system
BACKGROUND Scallion Ltd began business on July specialising in the purchase and supply of packaging materials. An accounting system was designed and a chart of accounts was established. The business uses the periodic inventory system and is registered for GST at the rate of The company also employs two office staff who work a fiveday week from Monday to Friday. One office staff member is responsible for overseeing the daily running of the business, including inventory ordering; the other maintains the companys accounting records.ACCOUNTING SYSTEM The company has a financial yearend June and prepares adjusting entries only at the end of the year. The firm uses the following journals to maintain its accounting records: Sales Journal: to record all credit sales of inventory Purchases Journal: to record all credit purchases of inventory Cash Receipts Journal: to record all cash receipts Cash Payments Journal: to record all cash payments General Journal: to record all transactions other than the above Scallion Ltd uses subsidiary ledgers for Accounts Receivable and Accounts Payable only. The company maintains a general ledger to record the increases and decreases in each asset, liability, owners equity, revenue and expense account. Subsidiary ledgers are used to record the separate details of Accounts Receivable and Accounts Payable. The company maintains a periodic system to account for its inventory. GOODS AND SERVICES TAX GST The company is registered for GST at the rate of and is required to pay GST on its purchases and to collect GST when making sales. The company uses a GST paid account for GST on purchases and a GST collected account for GST on sales for manual records YOUR ASSIGNMENTThe firms inhouse accountant has gone overseas for one month. You have been hired by Scallion Ltd to carry out the accounting duties in the accountants absence This assignment provides you with the unadjusted trial balance at the end of May and requires you to record typical transactions for a retail business for the last month of the financial year. Once these transactions have been recorded and posted, you are required to complete the accounting cycle by journalising and posting adjusting and closing entries and preparing financial statements.UNADJUSTED TRIAL BALANCE The unadjusted trial balance as at June is presented below: ACCOUNT NAME June Opening BalancesCash$ Accounts ReceivableAllowance for doubtful debtsInventoryOffice SuppliesPrepaid General InsuranceGST PaidEquipmentMachineryTruckLandAccounts PayableGST CollectedShare CapitalDiscount receivedRepairs and maintenancePurchasesPurchases returns & allowancesSalaries expenseSalesSales returns & allowancesElectricity expenseTelephone expenseOffice expensesDiscount allowed SUBSIDIARY LEDGERSThe individual balances of Accounts receivable and Accounts payable as at June are shown below. Amounts include GSTAccounts Receivable Subsidiary LedgerCUSTOMER June Opening BalancesCroft Ltd$ M BillerO MowenTOTALAccounts Payable Subsidiary LedgerCREDITOR June Opening BalancesTumult Ltd$ Lynwood LtdDyson LtdTOTAL ACCOUNTING PROCEDURES Transactions are recorded by the accountant on a daily basis in the appropriate journal. Transactions are posted daily from the General Journal and the Cash Receipts and Cash Payments Journal to the Accounts receivable and Accounts payable subsidiary ledgers. Totals of the special journals are posted to the appropriate accounts at the end of the month. Note: Amounts are to be recorded as the exact amounts in the journals and ledgers but are to be rounded to the nearest dollar when preparing financial statements. TRANSACTIONS The following transactions occurred during June and are INCLUSIVE of GST where appropriate. June Scallion Ltd shareholders invested $ cash in the business.Purchased land and an existing retail store for $ of which $ is considered land cost. Paid $ by cheque no for the retail store and signed a mortgage payable for the balance. The retails store is depreciated over its useful life of yearsPaid Lynwood Ltd $ less a discount of $ with cheque noReceived cheque from M Biller for $ as part payment of his accountPurchased store furniture on credit terms from Corma Ltd for $ terms nPurchased inventory on credit terms from Tumult Ltd $; invoice date June, terms nPurchased a year fire insurance policy for $ cheque noSent cheque no to Tumult Ltd in full settlement of May invoicePurchased inventory for $ cheque noPaid Lynwood Ltd $ cheque no for balance owing on May accountReturned unsatisfactory goods to Tumult Ltd and received a credit note for $Sold inventory to M Biller on account, $; invoice no terms nO Mowen paid his account in full.Paid Tumult Ltd amount due for June invoice, cheque noCash sales for period to June were recorded today, $Sold inventory to O Mowen on account $; invoice no terms nPaid salaries for period to June totaling $ cheque noM Biller paid the balance of his May invoicePurchased inventory on credit terms, from Lynwood Ltd $; invoice date June, terms nSent cheque, no to Dyson Ltd in full settlement of the accountReceived account for $ from M Parson for items chargeable to office expenses, terms nReceived inventory returned by OMowen and issued a credit note for $Received a cheque from M Biller for invoice noReceived a cheque from O Mowen for balance due on invoice noPurchased inventory from Dyson Ltd for $ terms, nSold inventory worth $ on credit to J Rowls; invoice no terms nPaid $ for electricity expenses, cheque noPaid Lynwood Ltd for the invoice dated June, cheque noPurchased inventory on account from Amcor Ltd $ terms nCash sales from June to June were $Paid salaries for period June totaling $ cheque noPurchased office supplies for $ cheque noReceived account from C Bond for $ for delivery expenses for the month.Sold inventory on credit to O Mowen for $ invoice no terms nPurchased printer for use in the business office at a cost of $ using a shortterm loan. Required a Record the transactions in the special journals in the following order: sales journal, purchases journal, cash receipts, cash payments and general journal. You will need to use the general journal for more adjusting entries coming up so make sure you leave room. The business uses sales and purchases journals for inventory transactions on credit only. Returns are processed through the general journal. Remember that special journals replace the general journal, so transactions will be recorded in a special journal or the general journal but not both b Prepare the accounts receivable control account as it would appear in the general ledger at the end of the reporting period, together with the related subsidiary ledger. Provide the accounts payable control account as per the general ledger at the end of the financial year and the subsidiary ledger.c Prepare general journal entries to record the following information. Office supplies on hand at June total $ The oneyear general insurance policy expires on October Equipment has a useful life of years with no residual value. Store furniture and printer have useful life of years with no residual value. Scallion Ltd uses straightline depreciation for these assets. Round all depreciation amounts upwards to nearest whole $ Commission revenue of $ has accrued during June Inventory at June is $ Additional Information At the end of the financial year, Scallion Ltd identified the following items that need to be resolved before financial statements are prepared. GST has been correctly accounted for on these noncurrent asset transactions. On st July Scallion Ltd purchased a used machine for $ cash. The cost was debited to the Machinery account in the ledger. Prior to use, additional expenses were incurred for installing and testing the machine. These costs amounted to $ and were debited to the repairs and maintenance expenses account. The installation and testing was completed on st October and the machine was brought into use on that date. The machine has an estimated useful life of years, with a residual value of $ Scallion uses straightline depreciation for machinery and records depreciation to the nearest month. No depreciation has yet been provided in respect of this asset in the current year. On nd July a small building and land were purchased for $ The purchase price was determined by appraisers based on a fair value of $ for the land, and $ for the building. The total purchase consideration of $ was debited to the land account. The building has an estimated useful life of years with no residual. Scallion uses straight line depreciation for buildings. No depreciation has yet been provided for the building in the current year. On June Scallion decided to adopt the revaluation model and to measure its land and buildings at fair value in the balance sheet. A valuation was carried out on June and the land was valued at $ and the building was valued at $ No entries have yet been passed in relation to these fair values. The fair value of the land and retail store acquired on nd June had not changed. A new truck was purchased on st March Scallion Ltd paid cash of $ The truck has an estimated useful life of years with a residual value of $ and is to be depreciated using the reducing balance method using a rate of times the straightline rate No depreciation has yet been provided in respect of this asset in the current year. REQUIRED: Prepare any adjusting or correcting entries required as at June in relation to the additional information provided above. Any entries necessary in respect of depreciation for each class of noncurrent assets discussed in the information given for the year ended June Scallion Ltd uses the allowance method of accounting for bad debts. One percent of net credit sales is estimated to be uncollectable for the year ended June round amount upward to nearest whole $ On June, Scallion Ltd was notified by the lawyers of Croft Ltd that they had been declared bankrupt and were unable to pay the amount owing. This debt was subsequently written off. Scallion Ltd received the June bank statement from First State Bank, as shown below:
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