Question 1 (40 marks)

A- Henri Macon is a Juice merchant trading from a single shop. Here is his trial balance as at 30

September 2019.

Trial balance for Henri Macon as at 30 September 2019

	Debit	Credit
Capital		38,600
Drawings	32,000
Bank loan		100,000
Cash at bank	70,600
Equipment at cost	10,000
Accumulated depreciation- Equipment		4,750
Fixtures at cost	70,000
Accumulated depreciation- Fixtures		33,250
Receivables	186,000
Allowance for receivables		4,000
Payables		210,000
Inventory (as at 1 October 2018)	72,000
Sales		744,000
Purchases	640,000
Insurance	3,600
Rent	20,000
Loan interest	15,000
Miscellaneous expenses	15,400
Total	1,134,600	1,134,600

Additional information is provided for use in preparing the companys adjustments:

1. The value of closing inventory is 136,000.
2. There is an accrual for rent of 4,000.
3. There is a prepayment of insurance of 400.
4. Office equipment has a useful life of four years and a residual value of 500. It is to be depreciated on a straight-line basis.
5. Fixtures are to be depreciated on the reducing balance basis at a rate of 20 per cent.
6. The Majestic Hotel is one of Henri's best customers. It has just been declared bankrupt. The hotel owes Henri 26,000.
7. The allowance for receivables is to be set at ten per cent of outstanding receivables as at 30 September 2019.

Required:

1. Make the end-of-period adjustments entries (10.8 Marks)
2. Prepare Henri's income statement for the year ended September 30, 2019. (9.2 Marks)
3. Prepare Henri's balance sheet as at September 30, 2019. (10 Marks)

B- What will be the effect on financial statements if an accrued revenue is not recorded at the end of the year? (4 Marks)

C- XYZ Company purchased an equipment on July 1, 2015 for $42,000. The equipment has an estimated useful life of five years and Barton expects to sell the equipment at the end of its life for $2,000.