Mac Ltd. provides legal advice to customers for fees. On 30 June 2020, Mac Ltd. completed its first year of operations. Some of the ledger account balances of the business, before any financial year end (30 June) adjustments, are provided below: $ Fees Revenue 354,000 Rent Expense 17,568 Electricity Expense 6,768 Wages Expense 130,560 Advertising Prepaid 2,160 No adjusting entries have been made to these accounts at any time during the year. An analysis of the business records reveals the following. 1. The total Fees Revenue recorded includes $1,800 that was prepaid by a client as a deposit for legal advice to be provided in July 2020. 2. The balance in Advertising Prepaid represents the amount paid for an advertising on a legal magazine for 6 months. The agreement with the publisher of the magazine covers the period 1 May 2020 to 31 October 2020. 3. The Electricity Expense ledger balance does not include the amount for June 2020. The account amounted to $1,260 and was received and paid during July. 4. The firms lease agreement for the office premises commenced from 1 July 2019. The agreement indicates a rent of $1,220 per month is to be paid on the first day of each month. In addition, an annual amount equal to 0.2% of the entitys total fees revenue earned each year should be paid. This extra rental is payable within 15 days of the end of the reporting period. 5. The entity hired part-time employees. Wages are paid fortnightly on Fridays (5 working day each week and each pay period covers Monday from preceding week to Friday in the pay week). In 2020, 30 June falls on a Tuesday and the wages for the two-week pay period ended on Friday 3 July 2020 is $9,360. All employees worked the normal office hours during the two--week pay period. Required: a) Journalise the necessary adjusting entries at the end of the period. (6 marks) b) Apply the knowledge that you have learned from Lecture 4, using an example to explain the differences between cash basis and accrual basis accounting, and further discuss why adjusting entries are necessary. (4 marks) ANSWER: ** Answer box will enlarge as you type Question 2 (9 marks) You are the bookkeeper of Mel Traders. You undertake a bank reconciliation at the end of every month. Mel Traders received its bank statement for the month ending 31 May 2021. The bank reconciliation at the end of April showed a deposit in transit of $11,700 and two outstanding cheques (no. 663 for $3,060and no. 671 for $6,300). The adjusted cash balance in the entitys records was $106,305 debit at the end of April. Below are the entitys May bank statement and the entitys book records that indicate the deposits made and cheques written during the month of May: AU Bank - Bank Statement For the period 01/05/2021 31/05/2021 Mel Traders Dr Cr Balance $ Balance brought forward 103,965 CR 1 May Deposit 11,700 115,665 CR 3 May Deposit 10,620 126,285 CR May Cheque # 682 4,680 121,605 CR 6 May Deposit 6,120 127,725 CR 8 May # 671 6,300 121,425 CR 9 May Deposit 7,560 128,985 CR 12 May Deposit 3,780 132,765 CR May # 684 6,300 126,465 CR 13 May # 683 15,300 111,165 CR 15 May Deposit 14,580 125,745 CR May # 687 13,320 112,425 CR 20 May Deposit 5,040 117,465 CR 22 May # 685 12,240 105,225 CR 26 May Deposit 13,680 118,905 CR 29 May # 686 11,340 107,565 CR 30 May # 680 7,740 99,825 CR 31 May interest 345 100,170 CR 31 May Transaction fees 195 99,975 CR Mel Traders Book Records Date Deposits made Cheques written $ No. $ May 3 10620 # 679 4320 6 6120 # 680 7740 9 7560 # 681 6210 12 3780 # 682 4680 15 14580 # 683 15300 20 5040 # 684 6300 26 13680 # 685 12240 29 11340 # 686 6480 $ 72,720 # 687 13320 $ 76,590 The cash at bank account balance on 31 May was $102,435. In reviewing cheques, a mistake was discovered: Cheque no. 686, written for insurance expenses of $11,340, was recorded in the general journal as $6,480. Required: a) As the entity does not use special journals, prepare the necessary general journal entries to bring the cash at bank account up to date as at 31 May 2021. (3 marks) b) Prepare a bank reconciliation statement for Mel Traders at 31 May 2021. Please ensure you indicate the balance of each amount with either a debit or credit in the bank reconciliation statement.