Culminating Task - LIGHTS, CAMERA, ACTION!

Sam Powell is a Grade 11 high school student in Niagara Falls, Ontario. He enjoys school and does very well in most of his classes, especially accounting. He likes accounting so much that he plans to become a Chartered Professional Accountant when he finishes university. Sam started his first part-time job last summer as an usher at the local movie theatre, the Starlite Theatre.

The Starlite Theatre is a small theatre owned by Lee Baron, who started the business last August. The theatre has a fiscal year-end of July 31. It is located in downtown Niagara Falls and has two screens that show current movies, as well as some older movies that Mr. Baron expects would still draw a crowd.

In order to start up the business, Mr. Baron took out a 5-year $72,000 bank loan on August 1 at an annual simple interest rate of 12%. The bank loan payments are due annually and include interest.

Mr. Baron has contracted out the concession stand to a confectionary company, Yummy Treats, that serves popcorn, pop, candy and nachos. Mr. Baron charges Yummy Treats 15% of the monthly gross revenue plus 13% HST which is payable at the end of each month.

Mr. Baron doesnt know much about accounting and has had his niece look after the bookkeeping and financial reporting. This summer Mr. Barons niece has decided to travel to Asia for 2 months and will not be around for the July 31 year-end. Mr. Baron panicked because he did not have anyone else to complete the year-end accounting procedures for the theatre. Sam overheard Mr. Baron talking about his dilemma and offered to help. Sam completed the Grade 11 Accounting class this semester and felt confident in his ability to complete the year-end procedures for a small business. He knew that it would be a great experience to see if he could put his knowledge into practice.

Mr. Baron had been pleased with Sams work at the theatre and agreed to let Sam complete the year-end procedures for the business.

Part 1 - Journal Entries & Postings - Journal entries, posting and trial balance Due November 6th

Using the information in Appendix A and B, record the journal entries for the July Transactions and post the entries to the General Ledger. Then take off a trial balance to make sure your accounts balance before moving on to Part 2. Please use the Excel file provided.

Part 2 - Financial Statements - Due November 9th

Prepare an Income Statement and Classified Balance Sheet using the Excel file provided for the July 31, 2019 year-end.

Part 3 - Adjusting Entries - Due November 11th

Step 1: Complete the worksheet (provided) including the adjusting entries at July 31, 2019. Note - for depreciation the Starlite Theatre uses the 50% rule.

1. Mr. Baron purchased the projection equipment on August 1, 2018. Using the declining balance method, record the annual depreciation of the equipment for 2019. The depreciation rate is 20%.

2. Mr. Baron purchased computer equipment on September 1, 2018. Using the declining balance method, record the annual depreciation of the computer equipment for 2019. The depreciation rate is 30%.

3. The insurance policy of $1,500 was purchased on November 1, 2018 and expires on October 31, 2019. Calculate the used portion of the insurance policy and make the appropriate entry.

4. Mr. Baron performed an inventory count of theatre supplies for the Starlite Theatre on July 31, 2019. He estimates that the Theatre has $250 worth of theatre supplies left.

5. On August 5, 2019, Mr. Baron received a hydro bill for the month of July. The amount of the bill was $140 plus HST.

Step 2: Answer Mr. Barons Questions regarding the adjusting entries in MS Word using complete sentences.

1. What is depreciation? If I have already paid for the equipment why cant I expense the entire amount on the Income Statement? This would save me a lot in tax this year and I think it is best that we record the entire amounts as an expense. Use Accounting Principles to support your answer.

2. Why do we need to make an adjustment to the insurance policy at the end of the year? Wouldnt it have been easier to record the entire balance as an expense in November when the policy was purchased? Use Accounting Principles to support your answer.

3. Why do I need to take an inventory count of my theatre supplies at the end of the year?

4. If I received the hydro bill on August 5, why dont we record the transaction for the next fiscal period rather than including it in the July 31, 2019 fiscal year-end? Use Accounting Principles to support your answer.

Appendix A Opening Trial Balance - see Excel file Note: HST 13%

Appendix B July Transactions

July 2 Paid rent $2200 plus HST to Reel Esteight. Cheque #55.

July 3 Acquired Pirate Johnny from Maxmira to be shown during the first three weeks of July.

The film rental was $9000 plus HST. Of that amount, $3000 was paid by Cheque #56.

July 4 Ordered the upcoming film Autos to be shown in August. The film rental fee will be

$7000 plus HST.

July 7 Paid $1200 in wages for the week. Cheques #57-60 used.

July 7 Received $6500 cash plus HST from ticket admissions for the first week of July. Cash

receipt #110.

July 10 Paid balance due on Pirate Johnny rental using Cheque #61.

July 12 Advertising expense of $800 plus HST paid by Cheque #62 to Niagara Falls Weekly.

July 14 Paid $1100 in wages for the week. Cheques #63-67 used.

July 14 Received $7200 cash plus HST from ticket sales. Cash receipt #111.

July 16 Obtained the popular thriller Jigsaw and paid the rental fee of $3000 plus HST to

Daramount using Cheque #68.

July 18 Purchase invoice received from In Your Ear for new projection equipment, $2000 plus HST.

July 21 Paid $1250 in wages for the week. Cheques #69-72 used.

July 21 Received $8400 cash plus HST from ticket sales. Cash receipt #112.

July 25 Purchase invoice from Office Outlet for office supplies, $300 plus HST. The office supplies

were used up immediately.

July 26 Paid outstanding Accounts Payable - Ontario Hydro invoice for June, $689. Cheque #73.

The HST recoverable amount was recorded when the invoice was entered and was included in the June remittance.

July 28 Paid $1025 in wages for the week. Cheques #74-77 used.

July 28 Received $6600 cash plus HST from ticket sales. Cash receipt #113.

July 29 Cheque #78 issued to Mr. Baron for $2300 for personal use.

July 31 Per Bank Debit Memo, annual bank loan payment and interest was taken from the bank

account

July 31 Received statement from Yummy Treats showing gross receipts from concessions of

$8000. Yummy Treats paid one-half of the balance due and will remit the remainder on August 5th.

***** Need to complete posting before you are able to do this journal entry***

July 31 Paid the HST balance owing for the end of July using Cheque #79.