QUESTION 2: Balance Day Adjustments (25 marks) This is not a typo. Q1 was included in Part A of the assignment, which now continues in Q2. Below is the unadjusted Trial Balance for Auldana Custom Concrete Foundations as at 30th June 2016. NOTE: Please use this trial balance to complete the question ( NOT the trial balance you completed in Part A of the assignment). ATRIUM FLORAL SUPPLIES UNADJUSTED TRIAL BALANCE AS AT 30 June 2017 Debit ($) 18 388 19 685 20 050 5 514 2 676 51 030 Cash at Bank Accounts Receivable Inventory Prepaid Insurance Office Supplies on hand Furniture & Fittings Accumulated Depreciation – Furniture & Fittings Equipment Accumulated Depreciation – Equipment Accounts Payable Advertising Payable Loan Payable Penny’s AFS – Capital Penny’s AFS – Drawings Sales Revenue Sales Returns and Allowances Cost of Sales Discount received Freight inwards Sales Salary Expense Delivery Expense Advertising Expense Rent Expense Office Salaries Expense Electricity Expense Discount Allowed Totals Credit ($) 12 634 74 845 18 120 25 327 1 700 48 805 53 580 36 655 725 900 10 010 162 308 13 096 7 920 66 936 19 692 26 660 27 148 35 150 7 656 6 839 599 162 On the next page is Penny’s information related to the year that ended 30 June 2016. 1 599 162 (1) A count of the stationery room showed that Office Supplies on hand at 30th June 2016 were $2 510. (2) Both the Furniture & Fittings and the Equipment will be used evenly over their useful lives. The expected total useful lives and residual values of both assets is as follows: Furniture & Fittings Equipment Estimated Useful life 6 years 10 years Estimated Residual $6030 $800 (3) Interest on the loan is 8.5% per year. Interest accrued but not recorded at 30th June was $248. (4) In order to allow for cash flow fluctuations, the bank has approved a $25,000 overdraft facility for Penny’s business bank account. (5) The balance in the Prepaid Insurance account represents a 12 month insurance policy that commenced on 1st March 2017. (6) $6 250 of the recorded Sales Revenue is for deposits paid for floral arrangements which will not be delivered until July/August 2017. (7) As of 30th June 2017, Penny has estimated that 2% of her Accounts Receivable will not be collected. REQUIRED: As it is now the end of the financial year, you have to undertake the following work for Penny: a. Prepare any necessary Balance Day Adjustment Journals for AFS. Include a brief narration (explanation) for each journal entry. (11 marks) b. Post the journals from (a) above to the General Ledgers provided. (7 marks) c. Complete the Adjusted Trial Balance provided for the account balances calculated in the General Ledgers from (b) above. (7 marks) 2 a. Date Prepare any necessary Balance Day Adjustment Journals for AFS. Include a brief narration (explanation) for each journal entry. Details Debit ($) 3 Credit ($) b. Complete and post the journals from (a) above to the General Ledgers provided below. All ledgers must be footed. Allowance for Doubtful Debts Prepaid Insurance Office Supplies on Hand Accumulated Depreciation – Furniture and Fittings Accumulated Depreciation – Delivery Equipment Unearned Sales Interest Payable Sales 4 Interest Expense Depreciation – Furniture and Fittings Depreciation – Delivery Equipment Office Supplies Expense Insurance Expense Doubtful Debts Expense 5 c. Complete the Adjusted Trial Balance provided below. You may need to insert additional accounts that are not currently listed. ATRIUM FLORAL SUPPIES ADJUSTED TRIAL BALANCE AS AT 30 JUNE 2016 Debit ($) 18 388 19 685 20 050 Cash at Bank Accounts Receivable Inventory Prepaid Insurance Office Supplies on hand Furniture & Fittings Accumulated Depreciation – Furniture & Fittings Delivery Equipment Accumulated Depreciation – Delivery Equipment Accounts Payable Advertising Payable Loan Payable (long term) Penny’s AFS – Capital Penny’s AFS – Drawings Sales Revenue Sales Returns and Allowances Cost of Sales Discount received Freight inwards Sales Salary Expense Delivery Expense Advertising Expense Rent Expense Office Salaries Expense Electricity Expense Discount Allowed Credit ($) 51 030 74 845 25 327 1 700 48 805 53 580 36 655 9 924 162 308 13 096 7 920 66 936 19 692 26 660 27 148 7 656 6 839 Totals 6 QUESTION 3: Financial Statement (18 marks) The following Trial Balance for Perry’s Parisian Pastries has been prepared at year end by Perry, but he realises it is not in the correct order. REQUIRED: Using the Trial Balance provided below, prepare the following for the period in question: 1. Fully classified Balance Sheet 2. Statement of Changes in Equity Perry’s Parisian Pastries TRIAL BALANCE AS AT 30 JUNE 2016 Debit ($) Shop Furniture & Fittings 32 500 Accounts Receivable 63 730 Accumulated Depreciation – Shop Furniture & Fittings Rent Expense – Admin 3 420 Cash at Bank 24 650 Advertising Payable Sales Electricity Expense 1 450 COGS 285 210 Perry, Capital Depreciation Expense – Shop Furniture & Fittings 3 750 Freight Inwards 2 930 Rent Expense – Store 27 500 Accounts Payable Discount Allowed 3 790 Inventory 22 445 Salaries Expense - Store 33 400 Loan Payable Allowance for Doubtful Debts Prepaid Advertising 1 550 Interest Payable Advertising Expense 635 Sales Equipment 12 500 Interest Expense 730 Doubtful Debts Expense 1 100 Perry, Drawings 16 600 Sales Returns & Allowances 6 905 Discount Received Salaries Expense - Admin 13 975 Totals 558 770 • The loan is payable in equal amounts over 30 months Answer on following pages 7 Credit ($) 9 240 3 600 445 385 48 010 15 235 32 400 1 100 580 3 220 558 770 8 QUESTION 4: Accounting Concepts (10 marks) You are employed as a graduate accountant in a mid-tier accounting firm. One of the partners has asked you to review the following cases where a client has violated at least one of the assumptions, concepts or definitions you studied at university. The partner has asked for a written report in your own words (using references where appropriate), to please explain: a) which concept or assumption has been violated, and; b) what the correct treatment should be. i. The bookkeeper of Pest Eradicator Services recorded revenues of $47,000 for the month because the manager told her that was the amount of revenue earned. The manager, whose monthly bonus is based on total revenues, said that the invoices and other documents the bookkeeper was working from were wrong. These invoices and documents showed revenue for the month as $33,000. [5 marks] __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ ii. The owner of a paper delivery round added $65,000 to the assets shown in his Balance Sheet. He did this because he had spent years building up the goodwill of his customers. “Surely”, he said, “this goodwill is an asset that should be shown in the Balance Sheet”. [5 marks] __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ 9 QUESTION 5: Cash Flow Statement (17 marks) Below are the summarised cash flow statements for two businesses. Comment in your own words using referencing where appropriate on which one has a healthier cash flow situation and justify your answer by explaining the significance of each of the three types of cash flows for each business: Amatil Light To the Max Cash flow from Operating Activities 12 900 (13 500) Cash flow from Investing Activities (7 300) 19 700 Cash flow from Financing Activities (6 900) (3 300) Net increase / (decrease) in cash held (1 300) 2 900 Cash at the beginning of the year 7 500 3 700 Cash at the end of the year 6 200 6 600 [Approximately 400 words expected in your answer] __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ __________________________________________________________________________________ 10
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