Question 6

Steel Traders uses a perpetual inventory system on accrual basis to account for stainless steel smart cookers that it sells with one-year warranty and maintenance services. It is registered for GST.

The business unadjusted trial balance as at 31 August 2021 was as follows:

Accounts	Debit ($)	Credit ($)
Accounts Payable		10,275
Accounts Receivable	16,000
Capital		100,000
Cash at Bank	35,000
Cost of Sales	376,000
GST Payable		1,125
GST Receivable	1,870
Insurance Expenses	3,600
Interest Expenses	2,000
Inventory	31,000
Maintenance Fees		12,000
Prepayments	22,500
Provision for Warranty		10,000
Rent Expenses	22,800
Salaries Expenses	60,240
Sales		440,000
Sales Returns and Allowances		3,000
Unearned Revenue		4,600
Utilities Expenses	5,690
Warranty Expenses	4,300
Total	581,000	581,000

At 31 August 2021, additional information showed:

i. Receipt of an invoice of $5,225 inclusive GST with terms of 2/30, n/60 from a service provider for warranty claims completed in August.

ii. Six smart cookers bought at the total amount of $7,260 inclusive GST on credit were returned to the distributor.

iii. A customer claimed cash refund of $5,500 inclusive GST for the return of two malfunctioning smart cookers. The items with a unit cost of $1,000 net GST were returned into inventory.

iv. A payment for shop rental of six months for 1 July 2021 to 31 December 2021 was recorded in the Rent Expenses account.

Required:

a. Prepare the general journal entries to record all the above transactions, using only the account names given in the unadjusted trial balance. [13 marks] b. Prepare the Prepayments and Rent Expenses T-ledger accounts after recording the adjustments in part a. for August 2021, showing the closing balance of each account. [5 marks]