Question 17 (6 marks)

On 21 June 20x1, the Large Mart store in Armidale purchased a new company car for its customer service department (called the "Nerd Herd"). The car costs $60,000 and was purchased from Coffs Harbour Car Sales. When purchasing the car, Large Mart took out a 1 year comprehensive insurance policy with NRMA insurance for a cost of $2,000. The invoice for the car allows Large Mart to deduct 5% of the cost of the car if the invoice is paid within 10 days.

On 23 July 20x1, Large Mart paid the invoice from the Coffs Harbour Car Sales (after deducting 5% discount) as well as the invoice for the insurance of the car.

Required:

a) Determine if the amount paid for the comprehensive insurance of the car and the discount received from Coffs Harbour Car Sales influence the total cost of the car in Large Marts accounting system AND explain your decision. (3 marks)

b) Provide all journal entries that are necessary in the books of Large Mart to account for the purchase of the car, and the payment of the invoice from Coffs Harbour Car Sales. (3 marks)

Question 18 (6 marks)

On 1 July 20x1, Large Mart purchases a new building (and the associated land) in Sydney. Large Mart paid $600,000 for the land and $800,000 for the building.

Large Mart will use the building for 25 years. After this time the building will have a residual value of $50,000. All Large Mart buildings are depreciated using the declining-balance method, and the yearly depreciation percentage for this building will be 8%.

On 30 June 20x3, Large Mart decides to revalue the building to its fair value of $750,000.

Required:

a) Calculate the yearly amount of depreciation for the new building for the year ended 30 June 20x3 AND outline the required calculations. (2 marks)

b) Provide all journal entries that are necessary to record the revaluation of the building on 30 June 20x3 AND outline the required calculations. (4 marks)

Question 19 (9 marks)

On 1 July 20x2, Large Mart signs a seven (7) year lease contract for a photocopier for its office. At the end of the lease period Large Mart will have the option to purchase the photocopier for $500 (but the expected fair value of the photocopier at the end of the lease term is $1,000). Large Mart is able to cancel the lease contract after paying 85% of the outstanding lease payments as a fine. Large Mart expects that the useful life of the photocopier is eight (8) years and all items in the Machinery/Equipment Account of Large Mart are depreciated using the sums-of-digits method. The photocopier is expected to have a residual value of $50 at the end of its useful life.

The lease contract requires Large Mart to make the following payments: $10,000 when the contract is signed (1 July 20x2), and $1,000 at the end of each year (30 June) during the lease term. The Large Mart accounting department has determined that the interest rate implicit in the lease is 12%, and that the market price of the photocopier at the time the lease contract is signed is equal to $15,000.

Required:

a) Calculate the present value of the minimum lease payments AND outline the required calculations. (2 marks)

b) Determine if the lease is a finance lease or an operation lease, and provide a DETAILED explanation of your decision. (2 marks)

c) Provide all journal entries that are necessary in the books of Large Mart to account for the signing of the lease contract AND all lease payments that Large Mart makes during the financial year ended 30 June 20x3. (3 marks)

d) State the amount of depreciation that will be recorded in the books of Large Mart for the year ended 30 June 20x3, assuming that Large Mart uses the sums-of-digits depreciation method AND outline the required calculations. (2 marks)

Question 20 (4 marks)

The statement of cash flows is an important part of every financial report.

Required:

a) Explain why the statement of cash flows is useful for the users of financial statements.(2 marks)

b) Determine if the statement of cash flows or the income statement can be manipulated more easily AND explain your decision. (2 marks)

Question 21 (6 marks)

On 1 July 20x2 (the first day of the financial year), Large Mart decided to start selling electric bicycles (e-bikes). Initially, Large Mart places an order for 50 e-bikes (for $250 per e-bike), and the first e-bikes arrive at the Large Mart store on 8 July 20x2. Following an advertising campaign, the e-bikes become a big seller and Large Mart makes the following sales and purchase transactions during the year:

Sale (10 August 20x2) of 10 e-bikes for a price of $900 per e-bike

Purchase (1 September 20x2) of 20 e-bikes for $300 per e-bike

Sale (10 September 20x2) of 30 e-bikes for $800 per e-bike

Sale (12 November 20x2) of 20 e-bikes for $750 per e-bike

Large Mart accounts for its inventory using the "first-in-first-out" cost flow assumption and the perpetual inventory system.

Required:

a) Calculate the cost of all e-bikes sold during the year ended 30 June 20x3 AND explain your calculations. (2 marks)

b) Calculate the closing balance of the inventory account on 30 June 20x3 AND explain your calculations. (2 marks)

c) Calculate the amount of revenue that the e-bikes have generated for Large Mart during the year ended 30 June 20x3 AND explain your calculations. (2 marks)

Assets 100-1990 Number Account Name Current Assets 101 Cash at Ba nk 102 Accounts Receivable 103 Lease Receivable 110 Ba nk Trust 120 Inventory Trade/Sales 120.1 Freight in (Trade/Sales) ts Received (Trade/s 120.2 Trade Discount 121 Inventory Components 121.1 Freight in (Components) 121.2 Trade Discount ts Received (Components 130 Office Supplies 131 Prepaid Rent current Non-Current Assets 150 Deferred Ta x Asset 161 Prepaid Rel 163 Motor V ehicles 163.1 Acc. Dep. Motor Vehicles 164 Machinery/Equipment 164.1 Acc. Dep. Machinery/Equipment 65 Buildings 165.1 Acc. Dep. Buildings 166 Warehouse Shelving 166.1 Acc. Dep. Warehouse Shelving 167 Computers 167.1 Acc. Dep. Computers 170 Distribution Rights 170.1 Acc. Amort. Distribution Rights 190 Land Liabilities 200 299 Number Account Name Current Liabilites 202 Accounts Payable 204 W Payable ages 205 Rent Payable 206 Interest Payable 207 Dividends Payable 208 Taxes Payable 215 Share Applications 216 Deben Applications Non-Cu ent Liabilities 230 Provision for Warranty 235 Provision for Remediation 250 Deferred Tax Liability 260 Lease Liability 270 Bank Loan 280 Deben Liability Owners Equity (300-399) Number Account Name 300 Share Capital 320 Retained Earnings 320.1 Dividends 330 General Reserve 350 Income Summary 360 Revaluation Surplus 390 Forfeited Shares Revenue (400-499) Number Account Name 401 Sales Revenue 401.1 Sales Returns/Allowances 420 Lease Revenue 423 Interest Revenue 425 Executory Expense Recoupment 441 Discount Received Payment 450 Reversal of Loss on Revalu ation 455 Reversal of Impairment Loss 460 Gain on Sale 490 Income Tax Revenue Cost of Good Sold (500-599 Number Account Name 500 Cost of Goods Sold Expenses (600-699) Number Account Name 611 Depreciation Expense 612 Amortisation xpense 615 Inventory Write Down Expense 620 Lease xpense 621 Rent Expense 622 Office Supplies Expense 623 Interest Expense 624 W age 625 Executory Expenses 630 Warranty Expense 641 Discount Given Payment 650 Loss on Revaluation 655 Impa ment Loss 660 Loss on Sale 690 Income Tax Expense