Prepare journal entries
Answer all TWO (2) Questions. Please type your answers immediately following each question. Show all the steps you take to reach your answer. Question 1 [35 marks] ABC Ltd imports designer spectacle frames and sells them to optometrists. The assets, liabilities and shareholders' equity balances of the business at 30 June 2016 are shown on the attached worksheet The following information about ABC Ltd is available: The business has an accounting period of one year. It determines profit or loss for each year following proper accrual principles. The opening balance in the prepayments column relates to 6 months' insurance for the period July 2016 to December 2016. The balance in the accrual column relates to electricity owing for June 2016. On 1 January 2016 Anthony Ltd borrowed $25 000 from Robin Banks and agreed to pay 12% interest per annum in arrears for 3 years. It is an interest only loan where the principal will be repaid in full at the end of the 3 years. The interest is paid on 30 June each year. The motor vehicle owned by the business on 30 June 2016 has an expected life of 4 years, and an expected residual value at the end of that time of $2 000. The company has 40 000 shares issued when the business began for S1 per share. Here is a summary of the transactions that took place during the year ended 30 June 2017: 1 In July 2016 the company delivered a special order to a customer. The special order had previously been paid for in May 2016 see the opening balance in the unearned revenue column. These special frames had cost ABC Ltd $1 000. 2 Received 80% of the amounts owing from debtors. 3 Purchased frames on credit for $ 35 000. 4 Paid tax owing from the previous year and also paid dividends to shareholders that had been declared at the end of the previous year. 5 Paid accrued expenses from previous year. 6 On 1 January 2017 paid a reduced annual insurance premium $5 400 7 Credit sales of frames totalled $64 000, while cash sales totalled $5 000. (The frames sold during the year had cost the business $32 000). 8 A second delivery vehicle was bought on 1 July 2016 for $ 15 000 cash. It is expected to have a useful life of four years and a residual value of $3 000. 9 Received $60 000 from debtors and paid creditors $40 000. 10 During the year paid $8 200 cash for vehicle running expenses. 11 Declared a dividend of 12.5 cents per share. 12 Electricity bills for the first three quarters of the year were paid totalling $1 820. The manager has estimated that the bill for the last quarter will be $690, but as yet is has not been received. 13 The company expects to have to pay $7 000 tax on the profits for the year. 14 A transfer of $5 000 to a general reserve is made and 20 000 bonus shares valued at $1 each are issued to shareholders based on the amount in retained profits. 15 Interest on the loan is paid on 30 June 2017. Answer all TWO (2) Questions. Please type your answers immediately following each question. Show all the steps you take to reach your answer. Question 1 [35 marks] ABC Ltd imports designer spectacle frames and sells them to optometrists. The assets, liabilities and shareholders' equity balances of the business at 30 June 2016 are shown on the attached worksheet The following information about ABC Ltd is available: The business has an accounting period of one year. It determines profit or loss for each year following proper accrual principles. The opening balance in the prepayments column relates to 6 months' insurance for the period July 2016 to December 2016. The balance in the accrual column relates to electricity owing for June 2016. On 1 January 2016 Anthony Ltd borrowed $25 000 from Robin Banks and agreed to pay 12% interest per annum in arrears for 3 years. It is an interest only loan where the principal will be repaid in full at the end of the 3 years. The interest is paid on 30 June each year. The motor vehicle owned by the business on 30 June 2016 has an expected life of 4 years, and an expected residual value at the end of that time of $2 000. The company has 40 000 shares issued when the business began for S1 per share. Here is a summary of the transactions that took place during the year ended 30 June 2017: 1 In July 2016 the company delivered a special order to a customer. The special order had previously been paid for in May 2016 see the opening balance in the unearned revenue column. These special frames had cost ABC Ltd $1 000. 2 Received 80% of the amounts owing from debtors. 3 Purchased frames on credit for $ 35 000. 4 Paid tax owing from the previous year and also paid dividends to shareholders that had been declared at the end of the previous year. 5 Paid accrued expenses from previous year. 6 On 1 January 2017 paid a reduced annual insurance premium $5 400 7 Credit sales of frames totalled $64 000, while cash sales totalled $5 000. (The frames sold during the year had cost the business $32 000). 8 A second delivery vehicle was bought on 1 July 2016 for $ 15 000 cash. It is expected to have a useful life of four years and a residual value of $3 000. 9 Received $60 000 from debtors and paid creditors $40 000. 10 During the year paid $8 200 cash for vehicle running expenses. 11 Declared a dividend of 12.5 cents per share. 12 Electricity bills for the first three quarters of the year were paid totalling $1 820. The manager has estimated that the bill for the last quarter will be $690, but as yet is has not been received. 13 The company expects to have to pay $7 000 tax on the profits for the year. 14 A transfer of $5 000 to a general reserve is made and 20 000 bonus shares valued at $1 each are issued to shareholders based on the amount in retained profits. 15 Interest on the loan is paid on 30 June 2017
