Question 2 19 marks) You are the bookkeeper of Mel Traders. You undertake a bank reconciliation at the end of every month. Mel Traders received its bank stafement for the month ending 31 May 2021. The bank reconciliation at the end of April showed a deposit in transit of 511,700 and two outstanding cheques (no. 663 for 53,060and no 671 for 56,300). The adjusted cash balance in the entity's records was $106,305 debit at the end of April. Below are the entity's Maybank statement and the entity's book records that indicate the deposits made and cheques written during the month of May. 1334 New 1 GO $102.435 The cash at bank account balance on 31 May was In reviewing cheques, a mistake was discovered Cheque no. 686, written for insurance expenses of $11.340, was recorded in the general journal as $6,480 Required: a) As the entity does not use special journals, prepare the necessary general journal entries to bring the cash at bank account up to date as at 31 May 2021. (3 marks) b) Prepare a bank reconciliation statement for Mel Traders at 31 May 2021. Please ensure you indicate the balance of each amount with cither a debitor credit in the bank reconciliation statement. (6 marks) Question 3 (7 marks) The information in the following table relates to the accounts receivable and allowance for doubtful debts of Prime Moving Ltd. The company's accounting period ends on 30 June each year. The company policy is to provide an allowance for doubtful debts at the rate of 3% of accounts receivable at 30 June each year. The balance of the Allowance for Doubtful Debts account on 1 July 2019 was $14 000. The following information is given for the year ending 30 June 2020 and 30 June 2021, in order to determine the bad debts expense for each year and the balance of allowance for doubtful debts at the end of each year. 2020 2021 Accounts receivable (ending balance at 30 June) S560,000 $630,000 Bad debts written off during the year 8,400 0 Allowance for doubtful debts at ! July (Beginning of the period) (d) Bad debts expense for the year (b) Allowance for doubtful debts at 30 June (Ending balance) (c) ( (a) (c) Required: a) Determine the missing amounts in the table. (3 marks) b) Discuss how the following accounts are recognised or disclosed in the entity's financial statements and their effect on the financial statements. (2 marks) discount allowed discount received bad debts expenses bad debts recovered c) Show the relevant section of the balance sheet prepared at 30 June 2021. (2 marks) Question 4 (8 marks) You are the senior accountant for a shoe wholesaler that uses the periodic inventory method. You have determined the following information from your company's records, which you assume is correct: 1. Inventory of $296,064 was on hand at the start of the year. 2. Purchases for the year totalled $2,028,000. Of this, $1,694,400 was purchased on account; that is, accounts payable was credited for this amount at the time of the purchase. 3. A year-end inventory count revealed inventory of $389,760 Required: a) Assume that the company uses periodic inventory system, calculate cost of sales. (2 marks) b) Assume now that your company uses the perpetual method of inventory control, and that your records show that $1,857,990 of inventory (at cost) was sold during the year. What is the adjustment needed to correct the records, given the inventory count in item 3 above? (2 marks) c) What might the need for this adjustment indicate about company operations? (1 marks) d) Assume that during the year, total inventory was sold for $3,360,000 on credit. What would be the entries to record the sales transaction under periodic inventory control system? What would be the entries to record the sales transaction under perpetual inventory control system? (3 marks) Question 5 (10 marks) Adam's mowing Limited purchased a group of new lawnmowers for $26,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five years and to have $650 residual value at that point. The entity's business plan projects cutting 6,000 lawns over the five years, with per-year projections of 650, 1,300, 1,460, 2,140 and 550 lawns over the five years. Required: a) Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases. Show your working. (6 marks) straight-line diminishing balance (52 per cent rate) units-of-production. b) You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity. Provide appropriate response to the owner's question and request. (3 marks) c) If the 52 per cent reducing balance method is used, accumulated depreciation will be $25,350 at the end of the fifth year. Suppose that, on the first day of the sixth year, all the lawnmowers are sold as junk for $100 cash in total. Ignoring income taxes, calculate the loss on sale that would be recorded that day. (1 mark) Question 6 (6 marks) The following events occurred during the year ended 30 June 2020 for Electrical Limited. a) On 1 June 2020, Electrical Ltd. signed a three-month 9% per annum bills payable to purchase a new equipment costing $576,000. Interest and principal are paid at maturity. b) On 29 June 2020, Electrical Ltd. received deposit in advance of $10,000 from a construction company for completing the electrical work for a new project during the next 6 months. c) Electricity charges of $50,000 from 24 April to 23 June are payable on 10 July. d) Electrical's main product is backed by warranty. Sales of this product for the year totalled $445,000. The opening balance of provision for warranty claims was $15,900. During the year, Electrical's warranty expense was $47,550 and claims paid to customers totalled $37,800. e) June sales totalled $252,000. Electrical Ltd. collected GST of 10% on this amount. This is due to be paid to the tax office by the seventh day of the following collection. f) On 30 June 2020, Electrical Ltd. took out a loan for $150,000 from AUZ Bank. Repayments of principal are scheduled evenly over a five-year period. Interest on the loan is paid in the year it is incurred. Required: For each item, indicate the account name and the amount to be included as a current liability on Electrical's balance sheet prepared at 30 June 2020. (show your working for your calculation for each amount). ANSWER: Question 1 (10 marks) Mac Ltd. provides legal advice to customers for fees. On 30 June 2020, Mac Ltd. completed its first year of operations. Some of the ledger account balances of the business, before any financial year end (30 June) adjustments, are provided below: Fees Revue Rent Expense Electricity Wages Expo Advertising Prepaid 2.14 No adjusting entries have been made to these accounts at any time during the year. An analysis of the business records reveals the following 1. The total Fees Revenue recorded includes $1,800 that was prepaid by a client as a deposit for legal advice to be provided in July 2020 2. The balance in Advertising Prepaid represents the amount paid for an advertising on a legal magazine for 6 months. The agreement with the publisher of the magazine covers the period 1 May 2020 to 31 October 2020 3. The Electricity Expense ledger balance does not include the amount for June 2020. The account amounted to $1,260 and was received and paid during July 4. The firm's lease agreement for the office premises commenced from 1 July 2019. The agreement indicates a rent of $1.220 per month is to be paid on the first day of cach month. In addition, an annual amount equal to 0.2% of the entity's total fees revenue carned each year should be paid. This extra rental is payable within 15 days of the end of the reporting period. 5. The entity hired part-time employees. Wages are paid fortnightly on Fridays (5 working day each week and each pay period covers Monday from preceding week to Friday in the pay week). In 2020, 30 June falls on a Tuesday and the wages for the two-week pay period ended on Friday 3 July 2020 is $9,360. All employees worked the normal office hours during the two--week pay period. Required: a) Journalise the necessary adjusting entries at the end of the period. (6 marks) b) Apply the knowledge that you have learned from Lecture 4. using an example to explain the differences between cash basis and accrual basis accounting, and further discuss why adjusting entries are necessary. (4 marks) Question 2 19 marks) You are the bookkeeper of Mel Traders. You undertake a bank reconciliation at the end of every month. Mel Traders received its bank stafement for the month ending 31 May 2021. The bank reconciliation at the end of April showed a deposit in transit of 511,700 and two outstanding cheques (no. 663 for 53,060and no 671 for 56,300). The adjusted cash balance in the entity's records was $106,305 debit at the end of April. Below are the entity's Maybank statement and the entity's book records that indicate the deposits made and cheques written during the month of May. 1334 New 1 GO $102.435 The cash at bank account balance on 31 May was In reviewing cheques, a mistake was discovered Cheque no. 686, written for insurance expenses of $11.340, was recorded in the general journal as $6,480 Required: a) As the entity does not use special journals, prepare the necessary general journal entries to bring the cash at bank account up to date as at 31 May 2021. (3 marks) b) Prepare a bank reconciliation statement for Mel Traders at 31 May 2021. Please ensure you indicate the balance of each amount with cither a debitor credit in the bank reconciliation statement. (6 marks) Question 3 (7 marks) The information in the following table relates to the accounts receivable and allowance for doubtful debts of Prime Moving Ltd. The company's accounting period ends on 30 June each year. The company policy is to provide an allowance for doubtful debts at the rate of 3% of accounts receivable at 30 June each year. The balance of the Allowance for Doubtful Debts account on 1 July 2019 was $14 000. The following information is given for the year ending 30 June 2020 and 30 June 2021, in order to determine the bad debts expense for each year and the balance of allowance for doubtful debts at the end of each year. 2020 2021 Accounts receivable (ending balance at 30 June) S560,000 $630,000 Bad debts written off during the year 8,400 0 Allowance for doubtful debts at ! July (Beginning of the period) (d) Bad debts expense for the year (b) Allowance for doubtful debts at 30 June (Ending balance) (c) ( (a) (c) Required: a) Determine the missing amounts in the table. (3 marks) b) Discuss how the following accounts are recognised or disclosed in the entity's financial statements and their effect on the financial statements. (2 marks) discount allowed discount received bad debts expenses bad debts recovered c) Show the relevant section of the balance sheet prepared at 30 June 2021. (2 marks) Question 4 (8 marks) You are the senior accountant for a shoe wholesaler that uses the periodic inventory method. You have determined the following information from your company's records, which you assume is correct: 1. Inventory of $296,064 was on hand at the start of the year. 2. Purchases for the year totalled $2,028,000. Of this, $1,694,400 was purchased on account; that is, accounts payable was credited for this amount at the time of the purchase. 3. A year-end inventory count revealed inventory of $389,760 Required: a) Assume that the company uses periodic inventory system, calculate cost of sales. (2 marks) b) Assume now that your company uses the perpetual method of inventory control, and that your records show that $1,857,990 of inventory (at cost) was sold during the year. What is the adjustment needed to correct the records, given the inventory count in item 3 above? (2 marks) c) What might the need for this adjustment indicate about company operations? (1 marks) d) Assume that during the year, total inventory was sold for $3,360,000 on credit. What would be the entries to record the sales transaction under periodic inventory control system? What would be the entries to record the sales transaction under perpetual inventory control system? (3 marks) Question 5 (10 marks) Adam's mowing Limited purchased a group of new lawnmowers for $26,000 at 1 July 2020. As the accountant of the business, you have estimated that the mowers are to last five years and to have $650 residual value at that point. The entity's business plan projects cutting 6,000 lawns over the five years, with per-year projections of 650, 1,300, 1,460, 2,140 and 550 lawns over the five years. Required: a) Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases. Show your working. (6 marks) straight-line diminishing balance (52 per cent rate) units-of-production. b) You are asked by the owner of the business which depreciation basis would result in the entity paying less tax at the end of the second year and so you should adopt that method for the mowers as it would save cost for the entity. Provide appropriate response to the owner's question and request. (3 marks) c) If the 52 per cent reducing balance method is used, accumulated depreciation will be $25,350 at the end of the fifth year. Suppose that, on the first day of the sixth year, all the lawnmowers are sold as junk for $100 cash in total. Ignoring income taxes, calculate the loss on sale that would be recorded that day. (1 mark) Question 6 (6 marks) The following events occurred during the year ended 30 June 2020 for Electrical Limited. a) On 1 June 2020, Electrical Ltd. signed a three-month 9% per annum bills payable to purchase a new equipment costing $576,000. Interest and principal are paid at maturity. b) On 29 June 2020, Electrical Ltd. received deposit in advance of $10,000 from a construction company for completing the electrical work for a new project during the next 6 months. c) Electricity charges of $50,000 from 24 April to 23 June are payable on 10 July. d) Electrical's main product is backed by warranty. Sales of this product for the year totalled $445,000. The opening balance of provision for warranty claims was $15,900. During the year, Electrical's warranty expense was $47,550 and claims paid to customers totalled $37,800. e) June sales totalled $252,000. Electrical Ltd. collected GST of 10% on this amount. This is due to be paid to the tax office by the seventh day of the following collection. f) On 30 June 2020, Electrical Ltd. took out a loan for $150,000 from AUZ Bank. Repayments of principal are scheduled evenly over a five-year period. Interest on the loan is paid in the year it is incurred. Required: For each item, indicate the account name and the amount to be included as a current liability on Electrical's balance sheet prepared at 30 June 2020. (show your working for your calculation for each amount). ANSWER: Question 1 (10 marks) Mac Ltd. provides legal advice to customers for fees. On 30 June 2020, Mac Ltd. completed its first year of operations. Some of the ledger account balances of the business, before any financial year end (30 June) adjustments, are provided below: Fees Revue Rent Expense Electricity Wages Expo Advertising Prepaid 2.14 No adjusting entries have been made to these accounts at any time during the year. An analysis of the business records reveals the following 1. The total Fees Revenue recorded includes $1,800 that was prepaid by a client as a deposit for legal advice to be provided in July 2020 2. The balance in Advertising Prepaid represents the amount paid for an advertising on a legal magazine for 6 months. The agreement with the publisher of the magazine covers the period 1 May 2020 to 31 October 2020 3. The Electricity Expense ledger balance does not include the amount for June 2020. The account amounted to $1,260 and was received and paid during July 4. The firm's lease agreement for the office premises commenced from 1 July 2019. The agreement indicates a rent of $1.220 per month is to be paid on the first day of cach month. In addition, an annual amount equal to 0.2% of the entity's total fees revenue carned each year should be paid. This extra rental is payable within 15 days of the end of the reporting period. 5. The entity hired part-time employees. Wages are paid fortnightly on Fridays (5 working day each week and each pay period covers Monday from preceding week to Friday in the pay week). In 2020, 30 June falls on a Tuesday and the wages for the two-week pay period ended on Friday 3 July 2020 is $9,360. All employees worked the normal office hours during the two--week pay period. Required: a) Journalise the necessary adjusting entries at the end of the period. (6 marks) b) Apply the knowledge that you have learned from Lecture 4. using an example to explain the differences between cash basis and accrual basis accounting, and further discuss why adjusting entries are necessary. (4 marks)