Question 1

Spencer Co. is a new business that started trading on 1 January 2018. The following is the statement of financial position of Spencer Co.

Spencer Co.

Statement of financial position as at 31 December 2018

ASSETS

Non-current assets

Property, plant and equipment

50,000

Current assets

Inventories

30,000

Trade receivables

25,000

Cash

58,000

Total assets

163,000

EQUITY AND LIABILITIES

Equity

Capital

120,000

Retained earnings

31,000

Current liabilities

Trade payables

12,000

Total equity and liabilities

163,000

During 2019, the following transactions took place:

1.The owners introduced 100,000 into the business.

2.Rates on the premises were paid during the year as follows: for the period 1 January 2019 to 31 February 2020 13,000.

3.Annual salary of the director is 60,000. Director's salary totalling 100,000 was paid.

4.Inventories totalling 75,000 were bought on credit.

5.Cash sales revenue totalled 80,000 (cost of sales 30,000).

6.Payments to trade payables totalled 30,000.

Required:

a)Analyse the above transactions using the accounting equation.

b)Journalise the above transactions.

c)Prepare general ledgers.

d)Prepare an income statement for the year to 31 December 2019.

e)Prepare a statement of Retained Earnings as at 31 December 2019.

f)Prepare a statement of financial position as at 31 December 2019.

g)Prepare closing entries.