Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Question 1: Mihir Ltd is a retailer of widgets. A part-time bookkeeper prepared the following Balance Sheet as at 30 June 2017, the end of

Question 1:

Mihir Ltd is a retailer of widgets. A part-time bookkeeper prepared the following Balance Sheet as at 30 June 2017, the end of the financial year. The companys Board of Directors suspects adjustments/corrections may be necessary.

Mihir Ltd

Balance Sheet

For the Year Ending June 30, 2017

Liabilities

Mortgage Payable

$380,000

Accounts Payable

23,000

Warranty Provision

13,200

Accrued Expenses Payable

15,000

Debentures Payable

103,000

$534,200

Equity

Share Capital

1,000,000

Retained Earnings

2,366,650

Revaluation Reserve

300,000

3,666,650

Total Equity

Total Liabilities & Equity

$4,200,850

Assets

Cash

6,000

Accounts Receivable

3,350

Office Supplies

1,500

Inventory

1,990,000

Investment Property

1,000,000

Land & Buildings

1,200,000

Total Assets

$4,200,850

Knowing that you are an experienced accountant, the Board of Directors asks you to review the Balance Sheet and other data. Your interviews disclose the following:

The mortgage is payable monthly for another ten years. A review of the amortisation schedule shows that the balance on 30 June 2018 will be $350,000.

The widgets come with a one-year warranty. The $13,200 provision shown on the balance sheet was calculated with the following facts:

Sales for the year ending 30 June 2017 were 100,000 units.

2% of total sales are estimated to require warranty work at an average cost of $3 per unit.

Actual repairs incurred for units sold in the year just ended were $1,800.

For the next financial year (beginning on 1 July 2017), the bookkeeper estimated sales to be 150,000 units with the same 2% defect rate and $3 repair cost per unit.

The 9% $100,000 face value debentures, due in four more years, were issued when the market interest rate was 6%. They pay interest semi-annually on 1 March and 1 September. The balance shown in the Balance Sheet is the correct balance after the 1 March payment. The bookkeeper, new to the job and unfamiliar with the effective interest rate method, failed to journalise an adjusting entry on 30 June 2017.

The $300,000 balance in Revaluation Reserve was calculated as follows:

In the unadjusted trial balance, the Revaluation Reserve account contained the correct balance (prior to revaluation) of $400,000.

Investment Property was revalued from $800,000 to $1,000,000.

Land & Buildings were revalued from $1,500,000 to $1,200,000.

The bookkeeper forgot to reconcile the bank account, so the $6,000 cash balance shown on the Balance Sheet is incorrect. The 30 June bank statement showed a $7,200 balance. Deposits in transit were $800 and outstanding cheques totalled $1,200. Also, the bank incorrectly recorded a $80 June deposit as $800.

Mihir Ltd accounts for inventory using FIFO under the periodic system. 25,000 widgets were on hand as at 30 June 2017. An additional 10,000 units had been purchased at $5 each, FOB shipping point, and were in transit on 30 June. The $1,990,000 balance for Inventory in the Balance Sheet was calculated as follows:

Beginning inventory (as at July 1, 2016) of 20,000 widgets at $2 each;

150,000 units purchased at $3 per unit during the first quarter of the year;

200,000 units purchased at $4 per unit during the second quarter of the year;

200,000 units purchased at $3 per unit during the third quarter of the year;

20,000 units purchased at $5 per unit during the fourth quarter of the year, including the in-transit items.

Required:

For 30 June 2017, prepare a correct Balance Sheet . Ignore GST. (Hint: The balance for Retained Earnings will be a plug, so there is no need to separately reconcile the retained earnings balance.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Accounting questions