Clarence Group is a company that manufactures sheds and small garages for residential houses. Their trial balance on September 1st, 2020 is as follows: Account Balance - Debit Balance - Credit $ $ $ $ $ 28,700 8,000 43,000 11,000 412,600 Cash Accounts Receivable Supplies Prepaid Rent Property Plant and Equipment Accumulated Depreciation Accounts Payable Salaries Payable Long-Term Debt Share Capital Retained Earnings Revenues COGS Salaries Expense Administration & Selling Costs Rent Expense Interest Expense Depreciation $ $ $ $ $ $ $ 71,800 16,900 3,700 170,200 100,000 156,860 214,000 $ $ $ $ $ $ 165,000 23,500 14,000 8,500 1,960 17,200 The following events took place during the month of September 2020: 1 - The company paid all outstanding salaries payable to their employees. 2 The company received $44,000 as an advanced payment for two garages to be built and installed on a residential property. Clarence Group started to build the shed and the installation is scheduled for October 15th, 2020. 3 The company used $65,000 worth of supplies during the month of September. The purchasing manager also purchased $28,500 worth of supplies. 4 - The total salaries expense for the employees for the month of September was $8,200. The president of the company also provides you with the following information about Clarence Group: 5 The company's debt carries an interest rate of 2.3% per year. The interest is payable on a quarterly basis on February 28th, May 31st , August 31st, November 30th. 6- The prepaid expense account, on September 1st, 2020, represented a prepaid asset for 3 months of rent. 7 - Due to the timing of the payroll, $1,400 of the wages for the month have not been paid as at September 30th, 2020. Required: a) Prepare the journal entries for the month of September to account for the events listed above as well as any adjusting entries that may be needed based on the additional information provided by the president of the company. (8 marks available) NOTE: Omit explanations. Use the table provided in the Word document when answering this part of the question. (Please put your answer in the Word document provided) Required: b) When you look at item #6 from the problem above: 6- The prepaid expense account, on September 1st , 2020, represented a prepaid asset for 3 months of rent. Discuss how this item would be treated differently if the company adopted cash accounting instead of accrual accounting. Also, discuss why you believe that the standard setters for ASPE and IFRS require companies to use Accrual accounting instead of cash accounting to rep their net income. Be sure to frame your response using the context of the rent example. (7 marks available)
