The Wheel Experts Co

Trial Balance

As on 1st December 2019

Debit

Credit

Cash

Rs. 105,250

Stock (opening, as of 1^st Jan, 2019)

368,000

Debtors

250,000

Allowance for Bad Debts

Rs. 5,000

Store Supplies

150,000

office Supplies

25,000

Prepaid rent

150,000

Lose Tools

178,000

Office Equipment

450,000

Machinery

3,300,000

Accumulated depreciation, office Equipment

40,000

Accumulated depreciation, Machinery

115,000

Creditors

294,000

Advances Sales Deposits

120,000

Bank loan @12%

1,500,000

Capital

1,235,000

Sales

8,653,000

Sales Returns & Allowances

42,000

Sales Discounts

12,000

Service Revenue (Wheel alignment & Balancing)

113,000

Purchases

5,390,000

Purchase Returns & Allowances

83,000

Purchase Discounts

29,000

Carriage Inwards

55,000

Carriage outwards (for sales)

13,500

Advertising Expense

13,250

Sales Salaries

850,000

Store Rent

250,000

Utility Expense (store)

78,500

Office Salaries

280,000

Office Rent

70,000

Legal and accounting expense

68,000

Utility expense (office)

43,500

Interest Expense

45,000

Totals

Rs. 12,187,000

Rs. 12,187,000

Section A:Transactions for the month of December 2019;

3^rd Dec; Purchased Goods on credit, terms 2/10,1/15; n/30, FOB shipping point, Rs. 250,000.

4^th Dec; Sold merchandise on credit, terms 1/10; n/40, for Rs. 200,000.

7^th Dec; Returned Goods purchased on 3^rd Dec, and received credit memorandum from supplier for allowance of Rs. 25,000.

10^th Dec; issued credit memorandum to debtor for returning goods worth of Rs12,000 sold on 4^th Dec.

14^th Dec; received payment from debtor against the sales of 4^th Dec for the net amount after allowing returns and discounts if any.

18^th Dec; paid the net amount after deducting all of return &allowance and discounts (if any), for the purchases of 3^rd December.

20^th Dec; received Rs 150,000 in cash from debtor for sale made on 21^st November, no discounts were allowed.

25^thDec; Paid salaries worth of Rs102,730; this include Rs 77,050 of sales salaries and Rs 25680 of office salaries.

27^th Dec; sold goods in cash for Rs. 50,000 which was originally prices at Rs. 53,000 by allowing trade discount of Rs 3,000 during the price bargain with customer.

31^st Dec, paid carriage of Rs.5,000 for goods purchased on 3^rd Dec.

Section B:Other Adjusting Information for the year end 31^st Dec 2019;

a)Store Supplies still available on hand were estimated to be of Rs12,500

b)Office supplies of Rs. 23,200 were estimated to have been consumed during the period.

c)Prepaid Rent included 3 months advance rent starting from 1^st November, this rent expense is to be charge 25% to office rent and 75% to store rent.

d)Debtors of Rs. 7,000 has been confirmed as bankrupt and are to be written off, it is also decided to maintain allowances for bad debts at Rs. 12,500 for the period end.

e)Lose tools of Rs. 28,500 are estimated to be consumed during the year.

f)Depreciation of Rs. 45,000 and Rs. 132,000 is to be charged for the year on office equipment and machinery respectively.

g)Utility Bill of Rs.12,000 for the month of December is payable on 13^th January 2020, has been received but not yet recorded. This bill amount includes Rs3,500 for Store and remaining amount for office.

h)The advertising expense include Rs.3500 paid to local cable operator on 1^stOctober for advertisement campaign for 4 months. The appropriate amount is to be adjusted and transferred to prepayments account.

i)The interest on bank loan @ 12% is to be charged for 4 months in current accounting period.

j)The business also furnishesspecial tires and rims when demanded by customer, however no sale returns on these tires and rims are allowed. Thus, all customers must pay in advance for these special tires and rims. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled, "advance sales deposits". As of December 31, Rs.35,000 of these deposits remained unearned.

k)Information to be used in closing; The physical count of stock revealed that the ending stock left on hand is worth Rs. (20285 x 10)

Requirements;

1.Pass all necessary journal entries for transactions mentioned in section A.

2.Prepare T-Accounts for Cash, Debtors, Creditors, Purchases, Purchases returns & allowances, Purchases Discounts, Sales, Sales returns & allowances, carriage inwards, carriage outwards, sales salaries, and office salaries. Enter the respective opening balance and post the transactions carried in section A (or journal entries of requirement 1).

3.Prepare Worksheet as of December 31^st, 2019; Enter the updated trial balance amounts (based on section A transactions), and complete the worksheet by posting adjusting information from Section B.Prepare Income Statement and Balance sheet for The Wheel Expert Co' for the year ended 31^st December 2019, in proper professional format.

4.Close all relevant trading activity accounts to Trading Profit & Loss Account. (Just show journal entries, no need for T-Accounts postings).

5.Close Trading Profit & Loss Account, and other operating expenses accounts to Income summary or Profit & Loss Account. (just show journal entries, no need for T-accounts postings)

6.Close income Summary or Profit & Loss Account, and drawings (if any) to Capital account.

7.Analyze the adjusting entries and its impact on Financial Statements of Babur Trading Co', do you consider accounts adjustment process is necessary for accounting in achieving its goal or objective (objective of accounting)? Explain.

8.By analyzing the bad debts and allowances for bad debts information, what suggestions and recommendation will you give to the company management? Do you think these information provide useful insight to both management and owners of the business?

The Wheel Experts Co

Trial Balance

As on 1st December 2019

Debit

Credit

Cash

Rs. 105,250

Stock (opening, as of 1^st Jan, 2019)

368,000

Debtors

250,000

Allowance for Bad Debts

Rs. 5,000

Store Supplies

150,000

office Supplies

25,000

Prepaid rent

150,000

Lose Tools

178,000

Office Equipment

450,000

Machinery

3,300,000

Accumulated depreciation, office Equipment

40,000

Accumulated depreciation, Machinery

115,000

Creditors

294,000

Advances Sales Deposits

120,000

Bank loan @12%

1,500,000

Capital

1,235,000

Sales

8,653,000

Sales Returns & Allowances

42,000

Sales Discounts

12,000

Service Revenue (Wheel alignment & Balancing)

113,000

Purchases

5,390,000

Purchase Returns & Allowances

83,000

Purchase Discounts

29,000

Carriage Inwards

55,000

Carriage outwards (for sales)

13,500

Advertising Expense

13,250

Sales Salaries

850,000

Store Rent

250,000

Utility Expense (store)

78,500

Office Salaries

280,000

Office Rent

70,000

Legal and accounting expense

68,000

Utility expense (office)

43,500

Interest Expense

45,000

Totals

Rs. 12,187,000

Rs. 12,187,000

Section A:Transactions for the month of December 2019;

3^rd Dec; Purchased Goods on credit, terms 2/10,1/15; n/30, FOB shipping point, Rs. 250,000.

4^th Dec; Sold merchandise on credit, terms 1/10; n/40, for Rs. 200,000.

7^th Dec; Returned Goods purchased on 3^rd Dec, and received credit memorandum from supplier for allowance of Rs. 25,000.

10^th Dec; issued credit memorandum to debtor for returning goods worth of Rs12,000 sold on 4^th Dec.

14^th Dec; received payment from debtor against the sales of 4^th Dec for the net amount after allowing returns and discounts if any.

18^th Dec; paid the net amount after deducting all of return &allowance and discounts (if any), for the purchases of 3^rd December.

20^th Dec; received Rs 150,000 in cash from debtor for sale made on 21^st November, no discounts were allowed.

25^thDec; Paid salaries worth of Rs102,730; this include Rs 77,050 of sales salaries and Rs 25680 of office salaries.

27^th Dec; sold goods in cash for Rs. 50,000 which was originally prices at Rs. 53,000 by allowing trade discount of Rs 3,000 during the price bargain with customer.

31^st Dec, paid carriage of Rs.5,000 for goods purchased on 3^rd Dec.

Section B:Other Adjusting Information for the year end 31^st Dec 2019;

a)Store Supplies still available on hand were estimated to be of Rs12,500

b)Office supplies of Rs. 23,200 were estimated to have been consumed during the period.

c)Prepaid Rent included 3 months advance rent starting from 1^st November, this rent expense is to be charge 25% to office rent and 75% to store rent.

d)Debtors of Rs. 7,000 has been confirmed as bankrupt and are to be written off, it is also decided to maintain allowances for bad debts at Rs. 12,500 for the period end.

e)Lose tools of Rs. 28,500 are estimated to be consumed during the year.

f)Depreciation of Rs. 45,000 and Rs. 132,000 is to be charged for the year on office equipment and machinery respectively.

g)Utility Bill of Rs.12,000 for the month of December is payable on 13^th January 2020, has been received but not yet recorded. This bill amount includes Rs3,500 for Store and remaining amount for office.

h)The advertising expense include Rs.3500 paid to local cable operator on 1^stOctubarfor advertisement campaign for 4 months. The appropriate amount is to be adjusted and transferred to prepayments account.

i)The interest on bank loan @ 12% is to be charged for 4 months in current accounting period.

j)The business also furnishesspecial tires and rims when demanded by customer, however no sale returns on these tires and rims are allowed. Thus, all customers must pay in advance for these special tires and rims. The entire sales amount is collected at the time a custom order is placed, and is credited to an account entitled, "advance sales deposits". As of December 31, Rs.35,000 of these deposits remained unearned.

k)Information to be used in closing; The physical count of stock revealed that the ending stock left on hand is worth Rs. (20285 x 10)

Requirements;

1.Pass all necessary journal entries for transactions mentioned in section A.

2.Prepare T-Accounts for Cash, Debtors, Creditors, Purchases, Purchases returns & allowances, Purchases Discounts, Sales, Sales returns & allowances, carriage inwards, carriage outwards, sales salaries, and office salaries. Enter the respective opening balance and post the transactions carried in section A (or journal entries of requirement 1).

3.Prepare Worksheet as of December 31^st, 2019; Enter the updated trial balance amounts (based on section A transactions), and complete the worksheet by posting adjusting information from Section B.Prepare Income Statement and Balance sheet for The Wheel Expert Co' for the year ended 31^st December 2019, in proper professional format.

4.Close all relevant trading activity accounts to Trading Profit & Loss Account. (Just show journal entries, no need for T-Accounts postings).

5.Close Trading Profit & Loss Account, and other operating expenses accounts to Income summary or Profit & Loss Account. (just show journal entries, no need for T-accounts postings)

6.Close income Summary or Profit & Loss Account, and drawings (if any) to Capital account.

7.Analyze the adjusting entries and its impact on Financial Statements of Babur Trading Co', do you consider accounts adjustment process is necessary for accounting in achieving its goal or objective (objective of accounting)? Explain.

8.By analyzing the bad debts and allowances for bad debts information, what suggestions and recommendation will you give to the company management? Do you think these information provide useful insight to both management and owners of the business?

Keeping in view the current period income statement and balance sheet, that you just prepared, how do you assess this business do you think it's working well in achieving the basic business goal? If it is doing well then highlight the business strengths in balance sheet and income statement, and if it is doing bad identify the possible problems within balance sheet and income statement.