Question 1 (40 marks) A Hope Company operates as a sole trader Below is a trial balance extracted from her books as at 31 December 2020 Trial balance for Hope Youssef as at 31 December 2020 Debit Credit Sales revenue 685.000 Inventory (as at 1 January 2020) 105,800 Purchases 625 200 Non current assets at cost: Equipment 100,000 Motor vehicle 80.000 Accumulated depreciation Equipment 10.000 Motor vehicle 10.000 Inwarance 14,700 Reat 30,000 Heating and lighting 10 000 Salaries and was 30.000 Motor expenses 15,300 Miscellaneous expenses 28.000 Receivables 110.000 Allowance for receivables 14.000 Payables 101.000 Cash $1,000 Bank loan 100.000 Capital 310.000 Total 1230.000 1.230.000 Additional information is provided for use in preparing the company's adjustments 1 The value of closing inventory is 102.500 2 On November 1. Hope Company borrowed 100,000, at 6% anual interest, from the National Bank. Hope Company has 120 days before the first payment is requred 3 Hope has paid her feet until 31 March 2021. Her annual rent is 24.000 4 Office equipment has a useful life of ten years and a readual value of 0 It us to be depreciated on a straight line basis 5 The motor vehicle with a useful life of ten years and an estimated residual value of 30,000 is to be depreciated on a straight-Imebaas at a rate of 10% 6 Hope finds that receivables of E10,000 send to be written off as recoverable 7 The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2020, 8 The beating bill will arrive on January and about 1.000 is expected to relate to the period until 31 December B124/ THE Final (VII) Page 2 of 6 Summer 2020 2021 Remind: 1. Make the end of period adjustments entries (72 Marks) 2. Prepare Hope's income statement for the yewe ended December 31, 2020, (7 Marks) 3. Prepare Hope's balance sheet as a December 31, 2020 (6 8 Marks) 4. How do the adjusting entries dites from other journal entries Explaw adjusting entries are needed (5 Marks (26 marks) (26 marks) B- The following transactions occurred in ABC Company: 1. The accountant recorded $900 Depreciation Expense on store equipment as follows: Dr. Depreciation Expense 900 Cr. Accounts Payable 900 2. The accrued salaries at December 31,2020 amounted to $490, The accountant made an adjusting entry by debiting salaries expense $940 and crediting Cash $940. Required: Show the effect of each entry on the financial statements separately. (Correcting entries are not required) (8 marks) C- The following information pertains to Nour Company: 1- Equipment was purchased on September 1, 2014 for $210,000. It is estimated salvage value is $30,000 and it is estimated useful life is 5 years. After the 5 years the equipment was sold for $30,000. 2- Building was purchased on January 1, 2018 for $300,000. It is useful life is 20 years and depreciated on a reducing balance rate of 10%. 3- Pioneer Advertising received $1,200 for future services on October 1, 2019 and credited the entire amount to Service Revenue. On December 31, 2019 Pioneer has performed only $800 of the services. 4- On December 31, 2019 the balance of Receivables was $165,000 and the balance of Allowance of irrecoverable receivables was $11,000. Before adjusting the accounts, Nour finds that receivables of $15,000 need to be written off as irrecoverable, and the allowance for receivables is to be set at ten percent of the remaining outstanding receivables as at 31 December 2019. Required: 1- Prepare the necessary adjusting entries at December 31, 2019. Show your calculations. 2- Prepare a partial income statement and a partial balance sheet for the year ended December 31.2019 to show the effect of the adjusting entries on these statements (Show you computations and explanation). (6 marks)
