Question 1 (40 marks) A- Tracy Underhill operates as a sole trader. Below is a trial balance extracted from her books as at 31 December 2017. Trial balance for Tracy Underhill as at 31 December 2017 Debit Credit Sales revenue 605.000 Inventory (as at January 2017 Purchases 105,800 625,200 Non-current assets at cost Equipment 100,000 Motor vehicle 80,000 Accumulated depreciation Equipment 10,000 Motor vehicle 10,000 Insurance 14.700 Rent 30.000 10,000 Heating and lighting Salaries and wages 40.000 Motoreponses 15.300 28.500 Miscellaneous expenses Receivables Allowance for receivables 110,000 14,000 Payables 101.500 71.000 Bank loan 100,000 Capital 300,000 Total 1.22.500 1.230.500 Additional information is provided for use in preparing the company's adjustments: The value of closing inventory is 102,500. 2 Interest is payable on the bank loan at eight per cent per annum. The annual amount due as at 31 December 2017 had not yet been paid. 3 Tracy has paid her rent until 31 March 2018. Her annual rent is 24,000. Office equipment has a useful life of ten years and a residual value of O. It is to be depreciated on a straight-line basis. s 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-line basis at a rate of 10% Payables 101.500 Cash 71.000 Rank loan 100,000 300,000 To Capital 1.21.500 1.230.500 Additional information is provided for use in preparing the company's adjustments: The value of closing inventory is 102,500. 2 Interest is payable on the bank loan at eight per cent per annum. The annual amount due as at 31 December 2017 had not yet been paid. 3 Tracy has paid her rent until 31 March 2018. Her annual rent is 24,000 Office equipment has a useful life of ten years and a residual value of O. It is to be depreciated on a straight-line basis. s 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-line basis at a rate of 10%. 6 Tracy finds that receivables of 10,000 need to be written off as irrecoverable. 7 The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2017. $ The heating bill will arrive on 5 January and about 1,000 is expected to relate to the period until 31 December. Required: 1. Make the end-of-period adjustments entries (11 Marks) 2. Prepare Tracy's income statement for the year ended December 31, 2017 (9 Marks) 3. Prepare Tracy's balance sheet as at December 31, 2017. (10 Marks) B- What will be the effect on financial statements if depreciation expense for equipment is not recorded at the end of the year? (4 marks) C- 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, Required: 1- Prepare the adjusting entry on December 31, 2019 for Pioneer Advertising. 2- Show the effect of the adjusting entry on the income statement and balance sheet at Dec.31, (6 marks) 2019
