Workshop Solutions T1 2014

8/10/2019 Workshop Solutions T1 2014

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Workshop Solutions Trimester 1, 2014

SESSION TWO Chapter 1

Questions3. (a) Income statement.

(b) Balance sheet.

(c) Income statement.

(d) Balance sheet.

(e) Balance sheet.

(f) Balance sheet.

5. It is important to determine if a business is a reporting entityas it is only reporting entities that are

required to prepare general purpose financial reports in accordance with the accounting standards.

Three main indicators determine which of the forms of business organisation fall into the category of a

reporting entity. That is, an entity is more likely to be classified as a reporting entity if it is (1) managed

by individuals who are not owners of the entity, (2) politically or economically important, and (3) sizable

in any of the following ways sales, assets, borrowings, customers or employees.

8. The going concern principle lends credibility to the cost principle; otherwise items would be reported atliquidation value. By assuming the entity will continue to operate, assets can continue to be reported atcost because they are expected to bring benefits to the business through use even though they mayhave little or no resale value.

BRIEF EXERCISE 1.2

(a) False

(b) True

(c) False

BRIEF EXERCISE 1.5

IS (a) Expenses during the period.

SFP (b) Accounts payable at the end of the year.

SCF (c) Cash received from borrowing during the period.

SCF (d) Cash payments for the purchase of property, plant and equipment.

BRIEF EXERCISE 1.6Taylor L td

Balance Sheet (Partial)

Current assets:

Cash $3,000

Short-term investments 8,200

Accounts receivable 20,000

Supplies 1,500

Prepaid rent 4,000

Total current assets 36,700

Non-current assets:

Property, plant and equipment 10,000

Total non-current assets 10,000

Total assets $46,700


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EXERCISE 1.9(a)

Wellington Wall Coverings Pty LtdIncome Statement

for the year ended 31 July 2012

$ $

Revenues:Sales revenue 100,000Less: Cost of sales 60,000

Gross profit 40,000Other revenue

Rent revenue 50,000Expenses:

Salaries expense 40,000Depreciation expense 7,000Other expenses 38,000

Total expense (85,000)Profit $5,000

Calculation of Retained Earningsfor the year ended 31 July 2012

$Retained earnings, 1 August 2011 3,000Add: Profit 5,000Retained earnings, 31 July 2012 $8,000

(b)

Wellington Wall Coverings Pty LtdStatement of f inancial position

as at 31 July 2012

$ $Current assets:

Cash 25,000Inventory 20,000

Total current assets 45,000

Non-current assets:Land 120 000

Building 140,000Less: Accumulated depreciation (14,000) 126,000

Total non-current assets 246,000

Total Assets 291,000

Current liabilities:Accounts payable 11,000Rent received in advance 2,000

Total current liabilities 13,000

Non-current liabilitiesBank loan 110 000

Total non-current liabilities 110,000Total liabilities 123 000NetAssets $168 000


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Equity

Share capital 160,000Retained earnings 8,000

Total equity $168,000

PROBLEM SET A 1.2

(a) In deciding whether to extend credit for 30 days you would be most interested in the Statement offinancial position because it shows the assets on hand that would be available for settlement of the

debt in the near-term.

(b) In purchasing an investment that will be held for an extended period, the investor must try to predict

the future performance of Dominos. The income statement provides the most useful information for

predicting future performance.

(c) In extending a loan for a relatively long period of time, the bank is most interested in the probability

that the company will generate sufficient income to meet its interest payments and repay its

principal. The bank would therefore be interested in predicting future profit using the income

statement.

It should be noted, however, that the lender would also be very interested in both the Statement offinancial position and the Statement of cash flows the Statement of financial position would showthe amount of debt the company has already incurred, as well as assets that could be liquidated torepay the loan. And the bank would be interested in the Statement of cash flows because it wouldprovide useful information for predicting the companys ability to generate cash to repay itsobligations.

(d) The finance director would be most interested in the Statement of cash flows since it shows howmuch cash the company generates and how that cash is used. The Statement of cash flows can beused to predict the companys future cash-generating ability.

IN-CLASS PROBLEM

PROBLEM SET A 1.3Ultimo Travel Goods Pty Ltd

(a) 1. The accounting entity concept states that economic events can be identified with a

particular unit of accountability. Since the Gold Coast villa is the personal property of

Mark Austin not Ultimo Travel Goods Pty Ltd it should not be reported on the

companys balance sheet. Likewise, the loan is a personal loan of Mark Austin not

a liability of the company.

2. The cost principle dictates that assets are recorded at their original cost. Therefore

reporting the inventory at $30,000 would be improper and violates the cost principle.

The inventory should be reported at $10,000.

3. Including the personal telephone account payable is a violation of the accounting

entity concept. The $5,000 payable is not a liability of Ultimo Travel Goods Pty Ltd. If

the company pays the telephone account on behalf of Mark Austin, it should be

accounted for as a loan to Mark or as drawings.


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(b)

Ultimo Travel Goods Pty Ltd

Balance Sheet

as at 30 June 2009

$

Cash 20,000Accounts receivable 55,000

Inventory 10,000

Total assets $85,000

Accounts payable ($40,000-$5,000) 35,000

Notes payable 15,000

Total liabilities 50,000

Equity *35,000

Total liabilities and equity $85,000

*$85,000 - $50,000 (Total assets minus total liabilities)


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SESSION THREE

Chapter 2

Questions

3. (a) Decrease assets, cashand decrease in equity, cleaning expenses.

(b) Increase assets, equipmentand decrease assets cash.

(c) Increase assets, cashand increase equity, share capital

(d) Decrease assets, cashand decrease liabilities, accounts payable.

7. (a) Accounts Receivable debit balance.

(b) Cash debit balance.

(c) Machinery debit balance.

(d) Accounts Payable credit balance.

(e) Service Revenue credit balance.

(f) Advertising Expense debit balance.

(g) Share Capital credit balance.

BRIEF EXERCISE 2.7Jagoda Ltd

Trial Balance

as at 31 December 2012

Account name Debit Credit

$ $

Cash 20,800

Prepaid Insurance 3,500

Accounts Payable 5,000

Revenue Received in Advance 4,200

Share Capital 10,000

Retained Earnings 9,000Dividends 4,500

Service Revenue 11,600

Salaries Expense 8,600

Rent Expense 2,400

$39,800 $39,800


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EXERCISE 2.4Expensive Designs Pty Ltd

Account debited Account credited

Transaction

(a)

Basic

Type

(b)

Specific

Account

(c)

Effect

(d)

Normal

balance

(a)

Basic

type

(b)

Specific

account

(c)

Effect

(d)

Normal

balance

1 Asset Cash Increase Debit Equity ShareCapital

Increase Credit

2 Asset Equipment/

Motor

Vehicles

Increase Debit Asset Cash Decrease Debit

3 Asset Supplies Increase Debit Liability Accounts

Payable

Increase Credit

4 Asset Accounts

Receivable

Increase Debit Equity Service

Revenue

Increase Credit

5 Equity AdvertisingExpense

Increase Debit Asset Cash Decrease Debit

6 Asset Cash Increase Debit Asset Accounts

Receivable

Decrease Debit

7 Liability Accounts

Payable

Decrease Credit Asset Cash Decrease Debit

8 Equity Dividends Increase Debit Asset Cash Decrease Debit

EXERCISE 2.7

Better Books Pty Ltd

General JournalTransaction Account Titles Debit Credit

$ $

1 Cash 20,000


(Issued shares to investors for cash)

2 Equipment/Photocopier 6,000

Cash 6,000

(Purchased photocopier for business on account)

3 Supplies 800

Accounts Payable 800(Purchased supplies on account)

4 Accounts Receivable 3,600


(Invoiced customers for services performed)

5 Advertising Expense 600

Cash 600

(Paid advertising expense)

6 Cash 1,500Accounts Receivable 1,500

(Received cash from customers on account)


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7 Accounts Payable 6,300

Cash 6,300

(Paid amount owing to accounts payable)

8 Rent Expense 1,200

Cash 1,200

(Paid dividends to shareholders)

EXERCISE 2.8Ink Pad Printers Ltd

(a)

Cash

1/8 Share Capital 17,000 12/8 Office Equipment 1,000

10/8 Service Revenue 12,400 31/8 Closing Balance 29,000

31/8 Accounts Receivable 600

30,000 30,000

1/9 Opening Balance 29,000

Accounts Receivable

25/8 Service Revenue 1,500 31/8 Cash 600

Closing Balance 900

1,500 1,500

1/9 Opening Balance 900

Office Equipment

12/8 Cash/Bank Loan 4,000

Bank Loan

12/8 Office Equipment 3,000

Share Capital

1/8 Cash 17,000

Service Revenue

31/8 Closing balance 13,900 10/8 Cash 12,400

25/8 Accounts Receivable 1,500

13,900 13,900

31/8 Balance 13,900


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(b)

Ink Pad Printers Ltd

Trial Balance

as at 31 August 2011

Debit Credit

$ $

Cash 29,000

Accounts Receivable 900

Office Equipment 4,000

Bank Loan 3,000



$33,900 $33,900

EXERCISE 2.12

Sushi To Go LtdTrial Balance

as at 31 July 2013

Account Name Debit Credit

$ $

Cash ($193,314 Debit total without Cash $163,880) 29,434

Accounts Receivable 27,184

Prepaid Insurance 3,836

Delivery Equipment 118,620

Bank Loan $56,800

Accounts Payable 14,692Salaries Payable 1,530


Retained Earnings 9,172

Dividends 1,300



Fuel Expense 1,416

Repair Expense 1,822

Insurance Expense 946

$193,314 $193,314


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PROBLEM SET B 2.4Too Much Fun ParkDate Account Titles and Explanation Debit Credit

Apr. 1 Cash

Share capital

(Issued shares for cash)

60,000

60,000

4 Land

Cash

(Purchased land for cash)

30,000

30,000

8 Advertising Expense

Accounts Payable

(Incurred advertising expense on account)

1,800

1,800

11 Salaries Expense

Cash

(Paid salaries)

1,700

1,700

12 No entry.13 Prepaid Insurance

Cash

(Paid for one-year insurance policy)

3,000

3,000

17 Dividends

Cash

(Payment of cash dividend)

600

600

20 Cash

Admission Revenue

(Received cash for services rendered)

5,700

5,700

25 Cash

Revenue received in advance(Received advance for future services)

2,500

2,500

30 Cash

Admission Revenue

(Received cash for services provided)

7,900

7,900

30 Accounts Payable

Cash

(Paid creditor on account)

700

700


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IN-CLASS PROBLEM (OPTIONAL)

PROBLEM SET A 2.5

Liu Advertising Pty Ltd

(a)

Date Account Titles and Explanation PostRef

Debit Credit

Apr. 1 Cash 100 25,500Share Capital 300 25,500


1 No entry not a transaction.

2 Rent Expense 510 950Cash 100 950

(Paid monthly office rent)

3 Supplies 115 2,550Accounts Payable 200 2,550

(Purchased supplies on account from SpeedyArt Supplies)

10 Accounts Receivable 110 1,350Service Revenue 400 1,350

(Invoiced clients for services rendered)

11 Cash 100 550Revenue Received in Advance 209 550

(Received cash advance for future service)

20 Cash 100 3,150Service Revenue 400 3,150

(Revenue received in cash)

30 Salaries Expense 500 1,950Cash 100 1,950

(Paid monthly salary)

30 Accounts Payable 200 1,150

Cash 100 1,150(Paid Speedy Art Supplies on account)


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(b)

Cash 100

Share Capital 25,500 2/4 Rent Expense 950

11/4 Revenue Received in

Advance

550 30/4 Salaries Expense 1,950

20/4 Service Revenue 3,150 30/4 Accounts Payable 1,150

30/4 Closing Balance 25,150

29,200 29,2001/5 Opening Balance 25,150


10/4 Service Revenue 1,350

Supplies 115


Accounts Payable 200

30/4 Cash 1,150 3/4 Supplies 2,550


2,250 2,250


Revenue Received in Advance 209

11/4 Cash 550

Share Capital 300

1/4 Cash 25,500

Service Revenue 400


20/4 Cash 3,150

4,500

Salaries Expense 500

30/4 Cash 1,950

Rent Expense 510

2/4 Cash 950


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(c)

Liu Advertising Pty Ltd

Trial Balanceas at 30 April 2012

Account Name Debit Credit

$ $

Cash 25,150


Supplies 2,550


Revenue Received in Advance 550




Rent Expense 950

$31,950 $31,950


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SESSION FOUR

QUESTIONS

.6. The two categories of adjusting entries are prepayments and accruals. Prepayments are eitherrevenues received in advance or prepayments of amounts that provide economic benefit for morethan one period, e.g. prepaid rent. Accruals consist of revenues and expenses earned or incurredbut which have not been recorded through daily transactions.

In a prepaid expense adjusting entry, expenses are debited and assets are credited. In a revenuereceived in advance adjusting entry liabilities are debited and revenues are credited.

BRIEF EXERCISE 3.4

DeVoe Ltd

(a) June 30 Interest Expense 400

Interest Payable 400

(Accrual of interest on loan)

(b) 30 Service Revenue Receivable 1,400

Service Revenue 1,400(Accrual of revenue)

(c) 30 Salaries Expense 700

Salaries Payable 700

(Accrual of salaries)

BRIEF EXERCISE 3.7The proper sequencing of the required steps in the accounting cycle is as follows:

1. (c) Analyse business transactions.

2. (e) Journalise the transactions.

3. (i) Post to ledger accounts.4. (d) Prepare a trial balance.

5. (h) Journalise and post adjusting entries.

6. (b) Prepare an adjusted trial balance.

7. (g) Prepare financial statements.

8. (f) Journalise and post closing entries.

9. (a) Prepare a post-closing balance.

EXERCISE 3.5

Zimbabwe Ltd

Item(1)

Type of Adjustment(2)

Accounts Before Adjustment(b)

Effect on profit

Overstated

/(understated)

(a) Accrued Revenue Asset Understated Understated

Revenue Understated

(b) Prepaid Expense Asset Overstated Overstated

Expense Understated

(c) Accrued Expense Expense Understated Overstated

Liabilities Understated

(d) Revenue Received in Advance Liability Overstated Understated

Revenue Understated


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(e) Accrued Expense Expense Understated Overstated

Liability Understated

(f) Prepaid Expense Asset Overstated Overstated

Expense Understated

EXERCISE 3.9Wolfmother Ltd

Income Statement

for the month ended 31 July 2014

Revenues: $ $Service revenue ($5 500 + $800) 6 300

Expenses:Wages expense ($2 300 + $300) 2 600Supplies expense ($1 200 - $400) 800

Electricity expense 600Insurance expense 300Depreciation expense 150

Total expenses 4 450Profit $1 850

EXERCISE 3.13

Woks LtdGeneral Journal

Date Account name (narration) $Debit

$

Credit

20131. June 30 Insurance Expense 10 570

Prepaid Insurance 10 570Calculations:$22200 3 yrs = $7 400 per annum, 1.5 yrs remain$6 340 2 yrs= 3 170 per annum, 1 year remains

$10 570Prepayment of B4564 at 30/6/13 is $11 100Prepayment of A2958 at 30/6/09 is 3 170 $14 270Pre adjustment balance or Prepaid Insurance $24 840Adjustment required to be recognised as exp $10 570

2. 30 Subscription Revenue Received in Advance 16 859Subscription Revenue 16 859

Calculations:Apr 300 x $85 x 3/12 = $6 375May 400 x $85 x 2/12 = 5 667

Jun 680 x $85 x 1/12 = 4 817

Subscriptions earned and tobe recognised as revenue $16 859

3. 30 Interest Expense 2 550

Interest Payable 2 550Calculation:

$85,000 x 9% x 4/12 = $2 550


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4. 30 Salaries Expense 4 410

Salaries Payable 4 410

Calculations:

5 x $840 x 3/5 = $2 520

3 x $1050 x 3/5 = 1 890

$4 410

(b) Subscriptions are usually paid in advance and for revenue to be recognised it needs to meet the revenuerecognition criteria. The revenue is recognised as the work is performed not when the cash is received.

PROBLEM SET B 3.8(a)

Corellian Windows LtdGeneral Journal

Date Account name (narration) PostRef.

$Debit

$Credit

2012

July 1 Cash 100 13 500

Share Capital 300 13 500


1 Motor Vehicles 171 9 000

Cash 100 4 500

Accounts Payable 200 4 500

(Purchased truck)

3 Cleaning Supplies 120 1 350

Accounts Payable 200 1 350(Purchased cleaning supplies)

5 Prepaid Insurance 130 1 800

Cash 100 1 800

(Paid insurance)

12 Accounts Receivable 110 3 750

Service Revenue 400 3 750

(Invoiced customers)

18 Accounts Payable 200 2 250Cash 100 2 250

(Paid accounts payable)

20 Salaries Expense 540 1 800

Cash 100 1 800

(Paid salaries)

21 Cash 100 2 100

Accounts Receivable 110 2 100

(Collected cash from customers on account)

25 Accounts Receivable 110 3 000


(Invoiced customers)


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31 Petrol & Oil Expense 500 300

Cash 100 300

(Paid for petrol and oil)

31 Dividends 315 900

Cash 100 900

(Paid cash dividend)

(b), (e) & (h)

Cash 100

1/7 Share Capital 13,500 1/7 Motor Vehicles 4,500

21/7 Accounts Receivable 2,100 5/7 Prepaid Insurance 1,800

18/7 Accounts Payable 2,250

20/7 Salaries Expense 1,800

31/7 Petrol & Oil Expense 300

31/7 Dividends 900


15,600 15,6001/8 Opening Balance 4,050


12/7 Service Revenue 3,750 21/7 Cash 2,100

25/7 Service Revenue 3,000

31/7 Service Revenue* 1,650 31/7 Closing Balance 6,300

8,400 8,400


* (e) adjusting entry, balance was $4,650 dr before adjusting entry

Cleaning Supplies 120

3/7 Accounts Payable 1,350 31/7 Cleaning Supplies Expense* 450

31/7 Closing Balance 900

1,350 1,350



Prepaid Insurance 130

5/7 Cash 1,800 31/7 Insurance Expense* 150

31/7 Closing Balance 1,6501,800 1,800



Motor Vehicles 171

1/7 Cash/AccountsPayable

9,000

Accumulated Depreciation Motor Vehicles 172

31/7 Depreciation Expense* 300

* (e) adjusting entry, nil balance before adjusting entry


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18/7 Cash 2,250 1/7 Motor Vehicles 4,500

31/7 Closing Balance 3,600 3/7 Cleaning Supplies 1,350

5,850 5,850



31/7 Salaries Expense* 600


Share Capital 300

1/7 Cash 13,500

Retained Earnings 310

31/7 Dividends 900 31/7 Income Summary 4,800


4,800 4,8001/8 Opening Balance 3,900

Dividends 315

31/7 Cash 900 31/7 Retained Earnings 900

Income Summary 320

31/7 Expenses 3,600 31/7 Revenue 8,400

31/7 Retained Earnings 4,800

8,400 8,400

Entries to this account are closing entries. It has a nil balance before and after closing entriesbecause the balance, profit, is closed to retained earnings,

Service Revenue 400

31/7 P & L Summary 8,400 12/7 Accounts Receivable 3,750


31/7 AccountsReceivable*

1,650

8,400 8,400

* (e) Adjusting entry,$6,750 cr balance before adjusting entry, $8,400 cr after adjustment, beforeclosing

Petrol & Oil Expense 500

31/7 Cash 300 31/7 P & L Summary 300

Cleaning Supplies Expense 510

31/7 Cleaning Supplies* 450 31/7 P & L Summary 450

* (e) Adjusting entry, nil balance before adjusting entry, $450 dr after adjustment, before closing

Depreciation Expense 520

31/7 Accumulated Depreciation* 300 31/7 P & L Summary 300



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31/7 Prepaid Insurance* 150 31/7 P & L Summary 150

* (e) Adjusting entry, nil balance before adjusting entry, $150 dr after adjustment, before closing


20/7 Cash 1,800 31/7 P & L Summary 2,400

31/7 Salaries Payable* 600

2,400 2,400* (e) adjusting entry $1800 dr balance before adjusting entry, $2400 dr after adjusting entry beforeclosing

(c) & (f)Corellian Windows Ltd

Trial Balanceas at 31 July 2012

(c) Unadjusted (f) Adjusted

No. Account name Debit $ Credit $ Debit $ Credit $100 Cash 4 050 4 050

110 Accounts Receivable 4 650 6 300

120 Cleaning Supplies 1 350 900

130 Prepaid Insurance 1 800 1 650

171 Motor Vehicles 9 000 9 000

172 Acced Depreciation M. Vehicles 300

200 Accounts Payable 3 600 3 600

210 Salaries Payable 600

300 Share Capital 13 500 13 500

310 Dividends 900 900

400 Service Revenue 6 750 8 400

500 Petrol & Oil Expense 300 300

510 Cleaning Supplies Expense 450

520 Depreciation Expense 300

530 Insurance Expense 150

540 Salaries Expense 1 800 2 400

$23 850 $23 850 $26 400 $26 400

(d)General Journal Corellian Windows Ltd

Date Account name (narration) PostRef.

Debit Credit

1. July 31 Accounts Receivable 110 1 650


(Accrued revenue)

2. 31 Depreciation Expense 520 300

Accumulated Depreciation 172 300

(Depreciation expense)

3. 31 Insurance Expense 530 150Prepaid Insurance 130 150

(Prepaid insurance expired)


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4. 31 Cleaning Supplies Expense 510 450

Cleaning Supplies 120 450

(Supplies used)

5. 31 Salaries Expense 540 600

Salaries Payable 210 600

(Accrued salaries)

(g)Corellian Windows Ltd

Income Statementfor the month ended 31 July 2012

$ $Revenues:

Service revenue 8 400

Expenses:

Salaries expense 2 ,400

Cleaning supplies expense 450Depreciation expense 300

Petrol & Oil expense 300

Insurance expense 150

Total expenses 3 600

Profit $4 800

Corellian Windows LtdCalculation of retained earnings

for the month ended 31 July 2012

Retained earnings 1 July $-

Add: Profit 4 800

4 800

Less: Dividends (900)

Retained earnings 31 July $3 900

Corellian Windows LtdStatement of financial posit ion

as at 31 July 2012

$ $ASSETS

Current assets

Cash 4 050

Accounts receivable 6 300

Cleaning supplies 900

Prepaid insurance 1 650

Total current assets 12 900

Non-current assets:

Motor Vehicles 9 000

Less: Accumulated depreciation (300)

Total non-current assets 8 700Total assets 21 600

LIABILITIES

Current liabilities:


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Accounts payable 3 600

Salaries payable 600

Total current liabilities 4 200

NET ASSETS $17 400

EQUITY:

Share capital 13 500

Retained earnings 3 900TOTAL EQUITY $17 400

(h)Corellian Windows Ltd

General Journal closing entries

Date Account name (narration) PostRef

Debit Credit

July 31 Service Revenue 400 8 400

Income Summary 320 8 400

(Close revenue accounts)

31 Income Summary 320 3 600

Petrol & Oil Expense 500 300

Cleaning Supplies Expense 510 450

Depreciation Expense 520 300

Insurance Expense 530 150

Salaries Expense 540 2 400

(Close expense accounts)

31 Income Summary 320 4 800

Retained Earnings 310 4 800(Close Income summary account)

31 Retained Earnings 310 900

Dividends 315 900

(Close dividends account)

i)Corellian Windows Ltd

Post-Closing Trial Balanceas at 31 July 2012

No. Account name Debit $ Credit$

100 Cash 4 050

110 Accounts Receivable 6 300

120 Cleaning Supplies 900

130 Prepaid Insurance 1 650

150 Motor Vehicles 9 000

151 Accumulated Depreciation Motor Vehicles 300

200 Accounts Payable 3 600

210 Salaries Payable 600

300 Share Capital 13 500

310 Retained Earnings 3 900

$21 900 $21 900


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PROBLEM SET B 3.2(a).

Coen LtdGeneral Journal

Date Account name (narration)

Post

Ref.

$

Debit

$

Credit

2013

1. June 30 Supplies Expense 505 3 720

Supplies ($4700 - $980) 113 3 720

(To adjust supplies account to reflect supplies used)

2. 30 Electricity Expense 530 220

Electricity Payable 218 220

(Accrued electricity)

3. 30 Insurance Expense 515 2 100

Prepaid Insurance 112 2 100

(Prepaid insurance( ($5040 12 months)x 5 months))

4. 30 Service Revenue Received in Advance 213 1 600


(Services performed in relation to revenue received in

advance)

5. 30 Salaries Expense 500 1 540Salaries Payable 215 1 540

(Accrued salaries)

6. 30 Depreciation Expense 520 3 750

Accumulated Depreciation Office Equipment

($45,000 60 months x 5)

131 3 750

(Record depreciation expense)

7. 30 Accounts Receivable 104 3 000


(Accrued revenue)

(b) Coen Ltd General Ledger

Cash 100

30/6 Balance 18 960


30/6 Balance 6 300 30/6 Balance 9 300

30/6 Service Revenue 3 000

9 300 9 300

1/7 Opening Balance 9 300

112


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Prepaid Insurance

30/6 Balance 5 040 30/6 Insurance Expense 2 100

30/6 Closing Balance 2 940

5 040 5 040


Supplies 113

30/6 Balance 4 700 30/6 Supplies Expense 3 720

30/6 Closing Balance 980

4 700 4 700


Office Equipment 130

30/6 Balance 45 000

Accumulated Depreciation Office Equipment 131

30/6 Depreciation Expense 3 750


30/6 Balance 3 100

Service Revenue Received in Advance 213

30/6 Service Revenue 1 600 30/6 Balance 3 000

30/6 Closing Balance 1 400

3 000 3 000



30/6 Salaries Expense 1 540

Electricity Payable 218

30/6 Electricity Expense 220

Share Capital 300

30/6 Balance 40 000

Service Revenue 400

30/6 Balance 50 990

30/6 Accounts Receivable 3 000

30/6 Service Revenue in Advance1 600

55 590


30/6 Balance 6 590

30/6 Salaries Payable 1 540

8 130

Supplies Expense 505

30/6 Supplies 3 720

Rent Expense 510

30/6 Balance 10 500


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30/6 Prepaid Insurance 2 100

Depreciation Expense 520

30/6 Accumulated Depreciation 3 750

Electricity Expense 530

30/6 Electricity Expense 220

(c)

Coen Ltd

Adjusted Trial Balance

as at 30 June 2013

No. Account name Debit Credit

$ $

100 Cash 18 960

104 Accounts Receivable 9 300112 Prepaid Insurance 2 940

113 Supplies 980

130 Office Equipment 45 000

131 Accumulated Depreciation Office Equipment 3 750

200 Accounts Payable 3 100

213 Service Revenue Received in Advance 1 400

215 Salaries Payable 1 540

218 Electricity Payable 220

300 Share Capital 40 000

400 Service Revenue 55 590

500 Salaries Expense 8 130

505 Supplies Expense 3 720

510 Rent Expense 10 500

515 Insurance Expense 2 100

520 Depreciation Expense 3 750

530 Electricity Expense 220

$105 600 $105 600

(d) To report the higher profit the adjustments to accrue expense and not write down assets would be avoided

hence depreciation, writing down supplies and the prepaid insurance, recognising salaries and electricity

expense. The shareholders old and potential new shareholders and the creditors would be affected as they

would make incorrect assumptions about the profitability and liquidity of the business


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SESSIONFIVEChapter 4

QUESTIONS3.

Net sales revenues $110,000Cost of goods sold 77,000Gross profit $33,000

6.24 July Accounts Payable ($4,480 - 280) 4,200

Discount Received ($4,200 x 2%) 84Cash ($4,200- $84) 4,116

BRIEF EXERCISE 4.3Hunt Ltd

(a) 2 Mar Accounts Receivable 900,000

Sales 900,000

Cost of Goods Sold 600,000

Inventory 600,000

(b) 6 Mar Sales Returns and Allowances 130,000


Inventory 80,000


(c) 8 Mar Cash ($770,000 - $15,400) 754,600

Discount Allowed ($770,000x 2%) 15,400

Accounts Receivable ($900,000 - $130,000) 770,000

BRIEF EXERCISE 4.5

These items and where they would appear in a fully classified income statement are listed below:

Item Section

Interest revenue Other revenues (below gross profit)

Cost of goods sold Cost of goods sold

Depreciation expense Operating expenses. Depreciation expenses could be further

classified either as an administrative expense (e.g. depreciation

of office equipment) or a selling expense (e.g. depreciation of

store or warehouse equipment).

Sales returns and allowances Sales revenue.

Purchase returns and

allowances

Under the periodic inventory system, purchase returns and

allowances appears in the income statement in the calculation

of cost of goods sold as part of the determination of gross profit.Under the perpetual inventory system, purchase returns and

allowances are recorded as a decrease in inventory and

therefore do not appear on the income statement


25/78

Discount received Other revenue

Discount allowed Financial expenses

EXERCISE 4.4

University Office Supplies

6 Sept. Inventory (80 x $20) 1,600Cash 1,600

9 Sept. Freight In 80Cash 80

10 Sept. Accounts Receivable 40Inventory 40

12 Sept. Accounts Receivable (26 x $30) 780Sales 780

Cost of sales (26 x $20) 520Inventory 520

14 Sept. Sales Returns and Allowances 30Accounts Receivable 30

Inventory 20Cost of sales 20

20 Sept. Accounts Receivable (30 x $30) 900Sales 900

Cost of sales (30 x $20) 600Inventory 600

CHAPTER 5

BRIEF EXERCISE 5.2Bass Ltd

OPERATING REVENUE

Sales revenue:

Gross sales revenue 945,000

Less: Sales returns and allowances -

Net sales revenue 945,000

Cost of goods sold:

Beginning inventory 90,000

Purchases 600,000

Less: Purchase returns and allowances (28,500)

Net purchases 571,000

Add: Freight-in 24,000

Cost of goods purchased 595,500

Cost of goods available for sale 685,500Less: Ending inventory 135,000

Cost of goods sold 550,500


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GROSS PROFIT 394500

EXERCISE 5.2 McAlpine Pty Ltd

Income Statement (partial)

for the year ended 30 June 2010

Beginning inventory 1 July 2009 $37,840

Purchases $313280

Less: Purchase returns and allowances 4,400


Cost of goods available for sale 346,720

Ending inventory 30 June 2010 57,200

Cost of goods sold $289,520

PROBLEM SET B 5.7

Kicked-Back Tennis Shop Pty LtdGeneral Journal

(a)

Date Particulars Debit Credit

Oct. 4 Purchases 940Accounts Payable 940

(Terms 3/7, n/30)

6 Freight-in 40Cash 40

8 Accounts Receivable 900Sales 900

10 Accounts Payable 40Purchase Returns and Allowances 40

11 Purchases 600Cash 600

11 Accounts Payable ($940 - $40) 900Discount Received ($900 x 3%) 27Cash ($900 - $27) 873

14 Purchases 500Accounts Payable

(Terms 2/7, n/60)500

15 Cash 50Purchase Returns and Allowances 50

17 Freight-in 30Cash 30



27/78

20 Cash 500


20 Accounts Payable 500Discount Received ($500 x 2%) 10Cash 490

27 Sales Returns and Allowances 30Accounts Receivable 30


30 Cash 500Accounts Receivable 500

(b)Cash

1/10 Opening Balance 2,500 6/10 Freight-in 4015/10 Purchase returns 50 11/10 Purchases 60020/10 Accounts

Receivable500 11/10 Accounts

Payable873

30/10 AccountsReceivable

500 17/10 Freight-in 30

20/10 AccountsPayable

490

31/10 Closing

Balance

1,517

3,550 3,5501/11 Opening Balance 1,517

Accounts Receivable

8/10 Sales 900 20/10 Cash 50018/10 Sales 800 27/10 Sales Returns 3030/10 Sales 900 30/10 Cash 500

31/10 ClosingBalance

1,570

2,600 2,600


Inventory


Accounts Payable

10/10 Purchase Returns 40 4/10 Purchases 94011/10 Discounts

Received & Cash900 14/10 Purchases 500

20/10 DiscountsReceived & Cash

500

1,440 1,440

Share Capital

1/10 OpeningBalance

4,200


28/78

Sales


900


800


900

2,600

Sales Returns and Allow ances


30

Purchases

4/10 Accounts Payable 94011/10 Cash 60014/10 Accounts Payable 500

2,040

Purchase Returns and Allowances10/10 Accounts

Payable40

15/10 Cash 5090

Discount Received


27


10

37

Freight-in

6/10 Cash 4017/10 Cash 30

70

(c)Kicked-Back Tennis Shop Pty Ltd

Trial Balanceas at 31 October 2013

Debit Credit

Cash $1,517Accounts Receivable 1,570Inventory 1,700Accounts Payable $-Share Capital 4,200Sales 2,600Sales Returns and Allowances 30Purchases 2,040

Purchase Returns and Allowances 90Discount Received 37Freight-in 70

$6,927 $6,927


29/78


30/78

7 Freight Out 220

Cash 220

11 Accounts Payable ($6,490 - $330) 6,160Discount Received ($6,160 x 2%) 123Cash 6,037

13 Cash 5,390

Discount Allowed ($5,500 x 2%) 110Accounts Receivable 5,500

14 Inventory 4,840Cash 4,840

16 Cash 550Inventory 550

21 Inventory 6,300Accounts Payable 6,300

22 Freight In 110

Cash 110

23 Cash 8,140Sales 8,140

Cost of Sales 6,732Inventory 6,732

26 Inventory 2,530Cash 2,530

27 Accounts Payable 6,300Discount Received ($6,300 x 2%) 126Cash 6,174

29 Sales Returns and Allowances 99Cash 99

Inventory 77Cost of Sales 77

30 Accounts Receivable 4,070Sales 4,070

Cost of Sales 3,300Inventory 3,300

(b) Cash

April 1 Opening Bal. 9,900 April 7 Freight Out 22013 Accounts

Receivable5,390 11 Accounts Payable 6,037

16 Inventory 550 14 Inventory 4,84023 Sales 8,140 22 Freight In 110

26 Inventory 2,53027 Accounts Payable 6,17429 Sales Returns 9930 Closing Bal. 3,970

$23,980 $23,980

May 1 Opening Bal. 3,970


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32/78

Freight Out

April 7 Cash 220

Cost of Sales

April 6 Inventory 4,400 April 29 Inventory 7723 Inventory 6,732 30 Closing Bal. 14,35530 Inventory 3,300

14,432 14,432May 1 Opening Bal. 14,355

(c)Funky Fashion Distribut ing Pty Ltd

Income Statement (Partial)for the month ended 30 April 2012

OPERATING REVENUESales revenue:

Gross sales revenue $17,710Less: Sales returns and allowances (99)

Net sales revenue $17,611Less: Cost of sales (14,355)

Freight in (110) (14,465)GROSS PROFIT $3,146

(d) Profit margin ratio =ProfitNet sales

GP 3,146 990 oper.Expen* + disc. recd $249 13.7%

17,611

2,405=

Gross profit ratio =

SalesNet

ProfitGross

17.9%17,611

3,146=

*Note: It is assumed that discounts allowed and freight out are included in operating expenses.


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SESSIONSIXChapter 4

QUESTIONS

10. (a) False. GST may be paid on taxable supplies at each stage in the commercial chain, however, it is thefinal consumer, not the first purchaser, who bears the cost of the GST.

(b) True. The GST is a value-added tax, which means that tax is levied on the value added by a

business at each stage in the production and distribution chain. The GST is not a tax on businessincome.

EXERCISE 4.11Peters Pottery Ltd

(a) Dr Cash/Accounts Receivable $6,600

Cr GST Collected (liability) $600

Cr Sales $6,000

Dr Inventory $1,100

Dr GST Paid (asset) $110Cr Cash/Accounts Payable $1,210

(b) Dr GST Collected $600

Cr GST Paid $110

Cr Cash $490

Alternatively a single GST clearing account can be used instead of GST Collected and GST Paid

accounts

EXERCISE 4.12Rock Shop Ltd

(a) May 3 Dr Inventory $400

Dr GST Paid 40

Cr Cash/Accounts payable $440

May 10 Dr Cash/Accounts receivable $550

Cr Sales $500

Cr GST collected $50

Dr GST Collected $50Cr GST Paid $40

Cr Cash $10


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35/78

15 Cash 1,680


17 Accounts Receivable (120 x $12) 1,440

Sales 1,440

(Term 2/7, n/30)

Cost of Sales (120 x $6) 720

Inventory 720

20 Inventory (120 x $6) 720

Accounts Payable

(Term 2/7, n/30)

720

24 Cash 1,411

Discount Allowed ($1,440 x 2%*) 29


26 Accounts Payable 720

Discount Received ($720 x 2%*) 14

Cash 706

28 Accounts Receivable (110 x $12) 1,320

Sales 1,320

Cost of Sales (110 x $6) 660

Inventory 660

30 Sales Returns and Allowances 180


Inventory 90


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Cost of Sales 90

(*to the nearest dollar)

(b) The advantages for The Reading Warehouse of using a perpetual inventory system as opposed to a

periodic inventory system are:

Inventory is constantly updated every time a purchase or sale is made. This means that TheReading Warehouse will be aware of when to reorder items of inventory.

Cost of sales is updated every time a sale is made so interim financial statements can be preparedwithout having to conduct an inventory count.

When The Reading Warehouse does conduct an inventory count (which should be at leastannually), any inventory losses can be accurately determined.

Using a perpetual inventory system would be a disadvantage for The Reading Warehouse if thebusiness does not have a suitable computer system to maintain inventory records.


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Chapter 5EXERCISE 5.5

Bozic LtdIncome Statement

for the month ended 31 January 2013

INCOME

Sales revenue:

Gross sales revenue $405,600

Less: Sales returns and allowances 16,900

Net sales revenue $388,700

Cost of sales:

Beginning inventory 1 January 54,600Purchases $260,000

Less: Purchase returns and allowances 11,700


Add: Freight-in 13,000

Cost of goods purchased 261,300

Cost of goods available for sale 315,900

Less: Ending Inventory 31 January 81,900

Cost of sales 234,000

GROSS PROFIT 154,700

OPERATING EXPENSES

Selling expenses:

Freight-out 9,100

Rent expense store space 13,000

Sales salaries expense 27,300 49,400

Administrative expenses:

Insurance expense 15,600Office salaries expense 52,000

Rent expense office space 13,000 80,600

Financial expenses:

Discount allowed 10,400 10,400

Total operating expenses 140,400

PROFIT $14,300


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In-Class Problem (Optional)PROBLEM SET A 4.4

(a)Tigers Tennis Pro Shop Pty Ltd

General Journal

Date ParticularsPostRef Debit Credit

April 7 Inventory

GST Paid

115 2,040

204

Accounts Payable 200 2,244

8 Freight Inwards

GST Paid

505 96

10

Cash 100 106

9 Accounts Payable

GST Paid

200 264

24

Inventory 115 240

10 Accounts Receivable

GST Collected

105 1,188

108

Sales 400 1,080

Cost of Goods Sold 500 756

Inventory 115 756

14 Inventory

GST Paid

115 792

79

Accounts Payable 200 871

Accounts Payable ($2,244 $264) 200 1,980

Discount Received ($1,980 x 2%)

GST Paid

410 36

4

Cash 100 1,940

17 Accounts Payable

GST Paid

200 79

7

Inventory 115 72

20 Accounts Receivable

GST Collected

105 924

84

Sales 400 840

Cost of Goods Sold 500 588

Inventory 115 588

Accounts Payable ($871 - $79) 200 792


39/78

21

Discount Received ($792 x 1%)

GST Paid

410 7

1

Cash 100 784

27 Sales Returns and AllowancesGST Collected 405 727

Accounts Receivable

Inventory

Cost of goods sold

105

50

79

50

30 Cash 100 1,320

Accounts Receivable 105 1,320

(b)

Cash 100

April 1 Opening Bal 3,000 April 8 Freight Inwards 106

April 14 Accounts Payable 1,940

30 Accounts

Receivable

1,320 21 784

30 Closing Bal. 1,490

4,320 4,320



April 10 Sales 1188 April 27 Sales Returns &

Allowances

79

20 Sales 924 30 Cash 1,320

2,112 30 Closing Bal. 713

2,112

May 1 Opening Bal. 713

Inventory 115

April 1 Opening Bal. 4,200 April 9 Accounts Payable 240

7 Accounts Payable 2,040 10 Cost of Goods Sold 756

14

27

Accounts Payable

Cost of goods sold

792

50


20 Cost of Goods Sold 588

30 Closing Bal. 5,426

7,082 7,082



April 9 Inventory 264 April 7 Inventory 2,244

14 Cash & Discount 1,980 14 Inventory 871

17 Inventory 79

21 Cash & Discount 792

3,115 3,115


40/78

Share Capital 300

April 1 Opening Bal. 7,200

Sales 400

April 10 Accounts Receivable 108020 Accounts Receivable 840

1,920

Sales Returns and Allowances 405

April 27 Accounts

Receivable

72

Discount Received 410April 14 Accounts Payable 36


43

Cost of Goods Sold 500

May 10 Inventory 756 April 27 Inventory 50

20 Inventory 588

1,294

Freight Inwards 505

April 8 Cash 96

GST PAID

April 7 Accts Pay 204 April 9 Accts Pay 24

8 Cash 10 14 Accts Pay 4

14 Accts Pay 79 17 Accts Pay 7

293 21 Accts Pay 1

Balance 257293

GST COLLECTED

April 27 Accts Rec 7 April 10 Accts Rec 108

Balance 185 20 Accts Rec 84

192 192


41/78

(c)

Tigers Tennis Pro Shop Pty Ltd

Trial Balance

as at Apri l 30, 2011

Debit Credit

Cash $1,490Accounts Receivable 713

Inventory 5,426

Accounts Payable -

Share Capital $7,200

Sales 1,920

Sales Returns and Allowances 72

Discount Received

GST Collected

43

185


Freight InwardsGST Paid

96257

$9,348 $9,348

(d)

Tigers Tennis Pro Shop Pty Ltd

Income Statement (Partial)

for the month ended 30 April 2011

Sales revenues

Sales $1,920

Less: Sales returns and allowances (72)

Net sales $1,848

Less: Cost of goods sold 1,344

Freight inwards 96 1440

Gross Profit $ 408


42/78

SESSION SEVENTO BE DONE IN CLASS AFTER REVIEW OF MID-SEMESTER TEST

PSB 5.11 & PSB5.12

PROBLEM SET B 5.11(a)

Jones Ltd

Perceptual Inventory MethodSales Revenue 93,500Income Summary 93,500

(To close various credit accounts to income summary)

Income Summary 68,860Cost Of Sales 63,360Sales Returns and Allowances 5,500

(To close various debit amounts to the IncomeSummary)

Income Summary 24,640Retained Earnings 24,640(To close Income Summary to Retained Earnings )

OR one net entrySales Revenue 93,500

Cost Of Sales 63,360Sales Returns and Allowances 5,500

Income Summary 24,640(To close various debit and credit amounts to the Income Summary)

Brown Ltd

Periodic Inventory Method

Income summary 87,560Beginning inventory 15,400Sales returns and allowances 5,500

Purchases 66,000Freight inwards 660

(To close various debit amounts to the IncomeSummary)

Ending inventory 17,600Sales 93,500Purchases returns and allowances 1,100

Income summary 112,200(To close various credit accounts to income summary)

Income Summary 24,640Retained Earnings 24,640

(To close Income Summary to Retained Earnings )


43/78

(b)

General ledgers

Perpetual methodIncome Summary

Cost of Sales, etc. 68,860 Sales revenue 93,500


93,500 93,500

Periodic methodIncome Summary

Beginning Inventory, etc. 87,560 Ending Inventory etc 112,200


112,200 112,200

PROBLEM SET B 5.12

Thompson Office Supplies

6 Sept. Inventory (120 x $29*) $3 480GST Paid (120 x $3) 360

Cash $3 840(Purchase 120 USB @ $32)

9 Sept. Freight Inwards/Inventory 120GST Paid 12

Cash 132(Paid freight )

10 Sept. Accounts Receivable (2 x $32) 64Inventory (2 x $29) 58GST Paid 6

(Returned 2 USB - credit given)

12 Sept. Accounts Receivable (39 x $43) 1 677Sales 1 521GST Collected 156

Cost of Sales (39 x $30) 1 170Inventory 1 170

(Sold 39 USB)

14 Sept. Sales Returns and Allowances 39GST Collected 4


Inventory 30Cost of Sales 30

(1 USB was returned into stock)


44/78

20 Sept. Accounts Receivable (45 x $43) 1 935Sales 1 755GST Collected 180

Cost of Sales [(7 x $30) + (38 x $29)] * 1 312Inventory 1 312

(Sold 45 USB)

*Rounding to the nearest dollar

**Note: Thompson Office Supplies uses the FIFO inventory cost flow assumption, which means thatinventory purchased earlier will be sold first. On 1st September, Thompson Office Supplies had 45 USB onstock @ $30 each. The first 39 USB were sold to Sunny Store on 12th September, so there were 6 USB left@ $20. But 1 USB was returned from Sunny Store on 14thSeptember. When Thompson Office Suppliessold 45 USB to Martins Ltd on 20th September, 7 USB from old stock @ $30 each were sold first, and theremaining 38 were taken from the new stock purchased on 6th September @ $29 each .


45/78

SESSION EIGHTChapter 6

Questions

6. At the end of the month, after all posting to both the general ledger and the subsidiary ledgeraccounts have been made, a total of a subsidiary ledger account balances should equal the balanceof the control account in the general ledger. In this case, the control account balance will be $450larger than the total of the subsidiary accounts. The difference would be investigated by checkingthe postings made to the control account and subsidiary ledger accounts and the error would bediscovered.

8. (a) General journal (d) Sales journal

(b) General journal (e) Cash receipts journal

(c) Cash receipts journal (f) General journal

BRIEF EXERCISE 6.4

(a) Cash receipts journal

(b) Cash payments journal

(c) Cash payments journal

(d) Sales journal

(e) Purchases journal(f) Cash receipts journal

BRIEF EXERCISE 6.6(a) Both in total and daily(b) In total(c) In total(d) Only daily (Note: They can also be individually posted at the end of the month.)

EXERCISE 6.4 Pena Pipes

(a) & (b)

Cash Receipts JournalCR1

te

Account

Credited RefCash Dr

Discount

Al lowed

Dr

Accounts

Receivable

CrSales

Cr

Other

Accounts

Cr

Cost of Goods

Sold Dr

Inventory Cr

10

ay 1 R Pena,

Cap.

60,000 60,000

2 6,000 6,000 4,200

22 R Dusto 9,000 9,000

75,000 9,000 6,000 60,000 4,200

Pena Pipes

Cash Payments Journal

CP1

Date Ch. No.

Account

Debited Ref.

Other

Accounts

Dr

Accounts

Payable

Dr

Discount

Received

Cr

Cash

Cr

2010

May 3 101 Inventory 9,000 9,00014 102 Salary

Expense

700 700

9,700 9,700


46/78

EXERCISE 6.7

Poullos Printworks

1. Cash Payments Journal 8. Cash Receipts Journal

2. General Journal 9. Cash Payments Journal

3. Cash Receipts Journal 10. General Journal

4. Cash Receipts Journal 11. General Journal

5. Sales Journal 12. Cash Payments Journal

6. Cash Receipts Journal 13. Purchases Journal

7. General Journal

EXERCISE 6.8

Williams Ltd

(a) The debit posting reference on 28 February should be from the cash payments journal (CP) to record the

payments made during the month. The missing general ledger debit amount should be $29,500 to balance.Wangs ending balance must be $3,240. (Accounts Payable control balance of $9,840 less Scaly, $4,600,and Gates, $2,000.)

(b) All amounts posted in total to the control account are also posted in detail in the accounts payable subsidiaryledger account. This system ensures that the total of the subsidiary ledger accounts will equal the total in thecorresponding control account.

PROBLEM SET A 6.5

Byron Bay Bikes

(a), (d) & (g)

General Ledger

Cash

No. 101

Date Explanation Ref Debit Credit Balance

July 31 CR16 117,918 117,918

31 CP16 46,166 71,752

Accounts Receivable No. 112


July 31 S15 21,480 21,480

31 CR16 16,680 4,800

Inventory No. 120


July 31 P14 50,784 50,784

29 CR16 540 50,244

31 S15 13,962 36,282

31 CR16 3,120 33,162


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Store Suppl ies No. 127


July 4 CP16 720 720

31 Adjusting entry G5 552 168

Prepaid Rent No. 131


July 11 CP16 7,200 7,200

31 Adjusting entry G5 600 6,600

Accounts Payable No. 201


July 31 P14 50,784 50,78431 CP16 35,520 15,264

Collins, Capital No. 301


July 1 CR16 96,000 96,000

Collins, Drawings No. 306


July 19 CP16 3,000 3,000

Sales No. 401


July 31 S15 21,480 21,480

31 CR16 4,800 26,280

Discount Received No. 405


July 31 CP16 274 274

Cost of Goods Sold No. 505

Date Explanation Ref Debit Credit BalanceJuly 31 S15 13,962 13,962

31 CR16 3,120 17,082


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Discount Allowed No. 614


July 31 CR16 102 102

Supplies Expense No. 631


July 31 Adjusting entry G5 552 552

Rent Expense No. 729


July 31 Adjusting entry G5 600 600

(b) Sales Journal

S15

Date

Account

Debited

Post

Ref

Accounts Receivable

Dr

Sales Cr

Cost of Goods Sold Dr

Inventory Cr

July 6 Toy World

Co.

6,480 4,212

8 Biker Ltd 4,320 2,808

10 L Lemansky 5,880 3,822

21 S Kane 4,800 3,120

21,480 13,962(112)/(401) (505)/(120)

Cash Receipts Journal

CR16

ate

Account

Credited Ref

Cash Dr

Discount

Al lowed

Dr

Accounts

Receivable

Cr

Sales

Cr

Other

Accounts

Cr

Cost of

Goods Sold

Dr

Inventory Cr

ly1 Williams,

Capital

301 96,000 96,000

7 4,800 4,800 3,120

13 Biker Limited 4,277 43 4,320

16 L Lemansky 5,821 59 5,880

20 Toy World 6,480 6,480

29 Inventory 120 540 540

117,918 102 16,680 4,800 96,540 3,120

(101) (614) (112) (401) (x) (505)/(120)

Cross-footing Totals $121,140

Dr Total = $121,140 ($117,918 + $102 + $3,120)

Cr Total = $121,140 ($16,680 + $4,800 + $95,540 + $3,120)


49/78

Accounts Payable Subsid iary Ledger

Dixons Bikes


July 4 P14 8,160 6,800

15 CP16 8,160 0

Bike Supplies


July 5 P14 9,000 7,500

10 CP16 9,000 0

R Gamble


July 11 P14 4,704 4,704

M Hill


July 13 P14 18,360 18,360

21 CP16 18,360 0

D Jacob

Date Explanation Ref Debit Credit BalanceJuly 20 P14 10,560 10,560

Accounts Receivable Subsid iary Ledger

Toy World Co.


July 6 S15 6,480 5,400

20 CR16 6,480 0

S Kane


July 21 S15 4,800 4,800

L Lemansky


July 10 S15 5,880 5,880

16 CR16 5,880 0


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Biker Ltd


July 8 S15 4,320 4,320

13 CR16 4,320 0

(e)

Byron Bay BikesUnadjusted Trial Balance

as at 31 July 2011

Debit Credit

101 Cash $71,752


120 Inventory 33,162

127 Store Supplies 720

131 Prepaid Rent 7,200

201 Accounts Payable $15,264301 Williams, Capital 96,000

306 Williams, Drawings 3,000

401 Sales 26280

405 Discount Received 274

505 Cost of Goods Sold 17,082

614 Discount Allowed 102

$137,818 $137,818

(f)

Accounts Payable Control Balance $15,264

Schedule of Accounts Payable 31/7/11:

D Jacob $10,560

R Gamble 4,704

$15,264

Accounts Receivable Control Balance $4,800

Schedule of Accounts Receivable 31/7/11:

S Kane $4,800

(b) & (g)

General Journal

G5

Date Account Titles and Explanation Ref Debit Credit

July 31 Supplies Expense 631 552

Store Supplies 127 552

(Adjusting entry to record supplies used)

31 Rent Expense 729 600

Prepaid Rent 131 600

(Adjusting entry to recognise July rent expense)


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(h)

Byron Bay Bikes


as at 31 July 2011

Debit Credit

101 Cash $71,752



127 Store Supplies 168

131 Prepaid Rent 6600

201 Accounts Payable $15,264

301 Williams, Capital 96,000

306 Williams, Drawings 3,000

401 Sales 26280

405 Discount Received 274505 Cost of Goods Sold 17,082


631 Supplies Expense 552

729 Rent Expense 600

$137,818 $137,818

(i) If the trial balance desnt balance:

Re-add the columns Check that all balances have been accurately transferred from the general ledger If the difference between the total of the debit and credit columns is divisible by 2, it may

indicate an amount that was posted to the same side twice instead of once as a debit andonce as a credit.

If the difference is divisible by 9, a transposition error may have been made ie: the order ofthe digits in a number may have been reversed, or the error may be a slide ie: the decimalplace has been incorrectly placed in one of the postings.


52/78

PROBLEM SET A 6.8

Toko Futons

(b)

Purchases Journal

P1

Date Account Credited Terms Ref.

Inventory Dr

Accounts Payable Cr

Feb. 6 S Healy 1/7, n/30 4,0009 L Held 1/10, n/30 30,000

16 R Landly 2/7, n/30 2,400

21 J Able 1/7, n/30 6,500

42,900

(120)/(201)

Cash Payments Journal

CP1

Date Account Debited Ref.

Other

Accounts

Dr.

Accounts

Payable Dr.

Inventory

Dr

Discount

Received Cr.

Cash Cr.

Feb. 9 Supplies 126 1,000 1,000

12 S Healy 4,000 40 3,960

15 Equipment 157 8,000 8,000

17 L Held 30,000 300 29,700

20 J Toko, Drawings 306 1,100 1,100

28 R Landly 2,400 2,400

10,100 36,400 0 340 46,160

(x) (201) (405) (101)

(a), (d) & (g)

Note: Correctedpost references for Sales Journal and Cash Receipts Journal are S1 and CR1 respectively as

illustrated in the solution below.

General Ledger

Cash No. 101

Date Explanation Ref. Debit Credit Balance

Feb. 28 CR1 48,595 48,59528 CP1 46,160 2,435

Accounts Receivable No. 112


Feb 28 S1 26,000 26,000

28 CR1 12,000 14,000


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Inventory No. 120


Feb. 28 P1 42,900 42,900

18 CR1 150 42,750

28 S1 17,160 25,590

28 CR1 4,290 21,300

Supplies No. 126


Feb. 9 CP1 1,000 1,000

28 Adjusting entry G1 700 300

Equipment No. 157


Feb. 15 CP1 8,000 8,000

Accumulated Depreciation - Equipment No. 158


Feb. 28 Adjusting entry G1 200 200

Accounts Payable No. 201


Feb. 28 P1 42,900 42,900

28 CP1 36,400 6,500

J Toko, Capital No. 301


Feb. 1 CR1 30,000 30,000

J Toko, Drawings No. 306


Feb. 20 CP1 1,100 1,100

Sales No. 401


Feb. 28 S1 26,000 26,000

28 CR1 6,500 32,500

Discount Received No. 405


Feb. 28 CP1 340 340

Cost of Sales No. 505


Feb. 28 S1 17,160 17,160

28 CR1 4,290 21,450


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55/78

L Held


Feb. 9 P1 30,000 30,000

17 CP1 30,000 0

R Landly


Feb. 16 P1 2,400 2,400

28 CP1 2,400 0

(e)Toko Futons

Trial Balance

as at 28 February 2013

Debit Credit

101 Cash $2,435



126 Supplies 1,000

157 Equipment 8,000

201 Accounts Payable $6,500

301 J Toko, Capital 30,000

306 J Toko, Drawings 1,100

401 Sales 32,500


505 Cost of Sales 21,450


$69,340 $69,340

(f)

Accounts Receivable Control Account $14,000

Accounts Receivable Subsidiary Accounts:

D Chambers $8,000

K Dawson 6,000 $14,000

Accounts Payable Control Account $6,500

Accounts Payable Subsidiary Account:

J Able $6,500

(g)

General Journal

G1

Date Account Titles and Explanation Ref. Debit Credit

Feb. 28 Supplies Expense 631 700

Supplies 126 700

(Record supplies used)


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28 Depreciation Expense 711 200

Accumulated Depreciation Equipment 158 200

(Record depreciation expense)

(h)

Toko Futons


as at 28 February 2013

Debit Credit

101 Cash $2,435



126 Supplies 300

157 Equipment 8,000

158 Accumulated Depreciation Equipment $200

201 Accounts Payable 6,500

301 J Toko, Capital 30,000306 J Toko, Drawings 1,100

401 Sales 32,500


505 Cost of Sales 21,450

631 Supplies Expense 700


711 Depreciation Expense 200

$69,540 $69,540


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SESSION NINEChapter 7

Questions

2. Cash should be reported at $17,850 ($5,000 + $850 + $12,000).

5. (a) A dishonoured cheque occurs when the bank on which the cheque is drawn refuses to pay the

cheque, because it has been cancelled or because the balance of the account on which it is drawn isless than the amount of the cheque.

(b) It reduced the balance of the bank account reported on the bank statement. The dishonoured chequeshould be recorded in the Cash at Bank account. It does not appear in the bank reconciliationstatement.

(c) A dishonoured cheque should be entered into the cash receipts as a reduction in cash receipts. Theadjusting entry in the companys ledger accounts is a debit to Accounts Receivable and a credit toCash.

BRIEF EXERCISE 7.6

Massey Ltd

(a) Bad Debts Expense [($500,000 x 1%) - $3,000] 2,000

Allowance for Doubtful Debts 2,000

(b) Bad Debts Expense [($500,000 x 1%) + $800] 5,800


EXERCISE 7.3

Shoe City Ltd

(a) Balance as per bank statement $4,392.20

Add: Outstanding deposits 708.00

5,100.20

Less: Unpresented cheques (876.00)

Balance as per Cash at Bank account (1) $4,224.20

(1) Cash balance per books $4,770.20

Less: Dishonoured cheque $516.00

Bank charges 30.00 455.00

Adjusted cash balance per books $4,224.20

(b) (In general journal form)

Accounts Receivable 516.00

Cash at Bank 516.00

Bank Charges 30.00

Cash at Bank 30.00


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EXERCISE 7.6

Garcia Pty Ltd

(a)

Accounts Receivable Amount %

Estimated

Uncollectables

Current $65,000 2.0 $1,300

1-30 days past due 12,600 5.0 63031-90 days past due 8,500 30.0 2,550

Over 90 days 6,400 50.0 3,200

$7,680

(b) Mar. 31 Bad Debts Expense 6,080


($7,680 - $1,600)

(c) The total balance of receivables increased from 2009 to 2010. However, of concern is the

fact that each of the three categories of older accounts increased substantially during 2010.

That is, customers are taking longer to pay and bad debts are likely to increase.

Management needs to investigate the causes of this change.

PROBLEM SET B 7.4(a) Interactive Ltd

Bank Reconciliation Statement

31 May 2010

Balance as per bank statement $15,569.20

Add: Outstanding deposits $1,672.30

Bank error teller cheque 1,200.00 2,872.30

18,441.50

Less: Unpresented cheques (2,552.50)

Balance as per Cash at Bank account (1) $15,889.00

Adjustment to bank account balance

(1) Original Cash at Bank balance per books $10,949.00

Add: Error in recording cheque no. 1181 360.00

Add: Collection of note receivable 6,120.00

17,429.00

Less: Dishonoured cheque ($1,400.00)

Error in 12 May receipt (20.00)

Bank cheque printing charge (120.00) (1,540.00)

Adjusted Cash at Bank account balance $15,889.00


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(b) (In general journal form)

Date Account Titles and Explanation Debit Credit

May 31 Cash at Bank 6,120

Bank Charges 40

Note Receivable 6,000Interest Revenue 160

31 Accounts Receivable W Hoad 1,400

Cash at Bank 1,400

31 Sales 20

Cash at Bank 20

31 Cash at bank 360

Accounts Payable M Helms 360

31 Bank Charges 120

Cash at Bank 120

PROBLEM SET B 7.7

Bantax Ltd

(a) $7,250.

(b) $1,750 [($115,000 X 5%) $4,000].

(c) $8,625 [($115,000 X 5%) + $2,875].

(d) Under the direct write-off method, accounts receivable are overstated because future

estimated write-offs are not anticipatedwrite-offs are journalized as they occur. In contrast, under the

allowance method, anticipated write-offs are estimated and reduce the ending accounts receivable

balance. The resulting estimated balance of accounts receivable, stated at recoverable amount, then

represents the present value of the cash flows expected to be derived from the receivable.

IN-CLASS PROBLEM (Optional)

PROBLEM SET B 7.8Gleason Ltd

(a) Dec. 31 Bad Debts Expense ($16,750 - $1,500) 15,250


(b) Dec. 31 Bad Debts Expense ($16,750 + $1,500) 18,250


(c) Allowance for Doubtful Debts 4,500



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(d) Bad Debts Expense 4,500


(e) The advantages of the allowance method over the direct write-off method are that it

attempts to show the recoverable amount of the accounts receivable on the balance

sheet and recognises a bad debts expense when the loss of future economic benefits is

probable.


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EXERCISE 8.6

Walpole Ltd

1 April 2007 Equipment Cost $53,000

Estimated Residual 5,000

Depreciable Amount $48,000

Useful life 8 years. Depreciation rate 100% 8 years = 12.5%

Annual depreciation is $6,000 p.a. ($48,000 8 or $48,000 x 12.5%)

After revaluation 1 July 2009, new depreciation is over 7 years.

Journal Entries $ $

1/4/07 Equipment 53,000

Cash 53,000

(Being purchase of equipment)

30/6/07 Depreciation Expense 1,500

Accumulated Depreciation Equipment 1,500

($48,000 8 x 3/12)



($48,000 8)


Accumulated Depreciation Equipment 6,000($48,000 8)

Revaluation

1/7/09 Accumulated Depreciation Equipment 13,500

Equipment 13,500

(Carrying value before revaluation = $39,500)

Equipment 11,000

Revaluation Reserve 11,000

(new carrying amount $39,500 + $11,000 = $50,500)



[($50,500 - $5,000) 7 years]

Sale



[($50,500 - $5,000)

7 years x 6/12 depn to date of sale]


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Cash 42,000

Equipment 50,500

Gain on sale of equipment 1,250

(Being disposal of equipment)

Calculation of gain on sale

Cost $50,500

Accumulated Depreciation (6,500 + 3,250) (9,750)

Carrying amount of equipment sold 40,750

Proceeds from sale 42,000

Gain on sale $1,250

EXERCISE 8.7

Warren Ltd

Balance date 30 June

1 July 2006 Equipment Cost $180,000

Estimated Residual 20,000

Depreciable Amount $160,000

Useful life 10 years. Depreciation rate 100% 10 years = 10.0%

Annual depreciation is $16,000 p.a. ($160,000 x 10%)

Journal Entries $ $

1/7/06 Equipment 180,000

Cash 180,000

(Being purchase of equipment)



($160,000 x 10%)



($160,000 x 10%)

Revaluation


Equipment 32,000

(Carrying value before revaluation = $148,000)

Equipment 17,000


(new carrying amt $148,000 + $17,000 = $165,000)


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[($165,000 - $15,000) 6 years]

Revaluation downward



[($165,000 - $15,000) 6 years x 6/12]


Equipment 37,500

(Carrying value before devaluation = $127,500)


Loss on revaluation expense 8,000

Equipment 25,000

(Being revaluation downward by $25,000)

PROBLEM SET A 8.1Fleming Ltd

Item Land Building Other Accounts

1 $250,000

2 $4,900 Land Improvements

3 27,000

4 7,270

5 $21,900

6 51,000

7 629,500

8 31,800 Land Improvements

9 5,320 Land Tax Expense

(12,700)

$271,570 $702,400 $42,020

PROBLEM SET A 8.5Dragon Ltd

Year ending 30 June

$ $

(a) 30/6/09 Depreciation Expense Machinery 10,000

Accumulated depreciation Machinery 10,000

($50,000 x 1/5 or #1 $2000, #2 $5000, #3 $3000)

(b) 30/0/09 Impairment Loss 7,000

Accumulated impairment loss Machine #2 7,000

(Writedown of mach #2 to recoverable amount)

Machine WDV Recoverable Amt Adj

1 $8,000 $9,000 nil

2 20,000 13,000 7,000

3 12,000 13,000 nil

(c) 30/6/10 Depreciation Expense Machinery 8,250

Accumulated depreciation Machinery 8,250


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(Depn #1 $2000, #2 $3,250(13,000/4), #3 $3000)

(d) 30/0/10 Accumulated impairment loss Machine #2 5,250

Income Impairment loss reversal 5,250

(Writedown of mach #2 to recoverable amount)

Machine WDV Recoverable Amt Adj

1 $6,000 6,500 nil

2 9,750* 17,000 5,250**3 9,000 9,500 nil

* $25,000 -5,000-7,000-3,250=$9,750

**#2WDV had the machine not been impaired

$25,000-$5,000-$5,000=$15,000 max reversal

permitted $15,000-9750 =$5,250

This will reinstate #2 to WDV of $15,000


PROBLEM SET A 8.6Payne Ltd

Journal Entries $ $

(a)

30/6/12 Land Brisbane 250,000

Land Sydney 200,000

Revaluation Surplus 450,000

(Revaluation of land Bris $250,000, Syd $200,000)

30/6/12 Accumulated Depn Buildings 75,000

Buildings Sydney 75,000

(to close off the accumulated depn to asset A/c)

Revaluation Surplus 25,000

Loss on revaluation of building 25,000

Buildings Sydney 50,000

(Revalue building from $425,000 to $375,000)

(b)

30/6/13 Depreciation Expense Buildings 25,000Accumulated Depn Buildings 25,000

(Depreciation expense for the year $375,000 x 1/15)


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SESSION ELEVEN

Chapter 11

Questions6. Sales $4,000,000

Less: Increase in receivables 400,000

Cash receipts from customers $3,600,000

7. A number of factors could have caused an increase in cash despite the loss for the period. Theseare:

(1) high cash revenues relative to low cash expenses

(2) sales of property, plant, and equipment

(3) sales of investments

(4) issue of debt or shares for cash.

9. This transaction is reported in the note or schedule entitled Noncash investing and financing activities asfollows: Issue of 2 million ordinary shares in consideration for equipment.

BRIEF EXERCISE 11.1

Riley Ltd

(a) Cash inflow from financing activity, $200,000

(b) Cash outflow from investing activity, $150,000

(c) Cash inflow from investing activity, $ 20,000

(d) Cash outflow from financing activity, $ 50,000

BRIEF EXERCISE 11.6

Wellington Manufacturing Ltd

Original cost of equipment sold $22,000

Less Accumulated depreciation (6,000)

Carrying amount of equipment sold 16,000

Add: Gain on sale of equipment 3,000

Cash flow from sale of equipment $19,000

EXERCISE 11.5

Thomas Ltd

(a) Investing activity (h) Financing activity

(b) Financing activity (i) Operating activity (reconciliation)

(c) Investing activity (j) Financing activity

(d) Non-cash investing and financing

activity

(k) Operating activity

(e) Operating activity (reconciliation) (l) Non-cash financing activity

(f) Financing activity (m) Investing activity (cash proceeds from

sale)

(g) Operating activity (n) Operating activity


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EXERCISE 11.8Flypaper Airlines Ltd

Partial Cash Flow Statement

for the year ended 31 December 2009

Cash flows from operating activities:

Cash receipts from:Customers *$250,000Dividends on investment 14,000

264,000Cash payments:

To suppliers for inventory $100,000For operating expenses 20,000For salaries and wages 68,000For interest 15,000For income taxes 16,000 219,000

Net cash provided by operating activities $45,000

*$60,000 + $190,000

EXERCISE 11.11Dynasty Ltd

Partial Statement of Cash Flows

for the year ended 30 June 2013

Cash flows from operating activities:Cash receipts from:

Customers *$350,000Dividends on investment 19,600

369,600Cash payments:

To suppliers for inventory $140,000For operating expenses 28,000For salaries and wages 95,200For interest 21,000For income taxes 22,400 306,600


*$84,000 + $266,000


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EXERCISE 11.12

Dunmore Enterprises Ltd


Profit $153,000

Adjustments to reconcile profit to net cash provided by operating

activities:

Depreciation expense $19,000

Increase in accounts receivable (31,000)

Decrease in accounts payable (10,000)


Increase in prepaid expenses (5,000)

Decrease in inventory 25,000 (2,000)


PROBLEM SET A 11.5(a)

Tasman Oak Ltd

Statement of Cash Flows

for the year ended 31 March 2013


Cash receipts from customers $284,200 (1)

Cash payments:

To suppliers $100,410 (2)For operating expenses 15,110 (3)

For income taxes 7,000

For interest 2,230 (124,750)

Net cash provided by operating activities 159,450

Cash flows from investing activities:

Purchase of investments (14,000)

Sale of machinery 1,500

Purchase of machinery (85,000)

Net cash used by investing activities (97,500)

Cash flows from financing activities:

Issue of shares 35,000

Redemption of debentures (15,000)

Payment of cash dividends (22,350)

Net cash used by financing activities (2,350)

Net increase in cash 59,600

Cash at beginning of period 38,400

Cash at end of period $98,000


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Computations:

(1) Cash receipts from customers:

Sales $342,000

Deduct: Increase in accounts receivable (57,800)

Cash receipts from customers $284,200

(2) Cash payments to suppliers:Cost of sales $115,460

Add: Increase in inventory 9,650

Cost of purchases 125,110

Deduct: Increase in accounts payable (24,700)

Cash payments to suppliers $100,410

(3) Cash payments for operating expenses:

Operating expenses excluding depreciation $12,410

Add: Increase in prepaid expenses $2,400

Decrease in accrued expenses

payable 300 2,700Cash payments for operating expenses $15,110

(b)

Tasman Oak Ltd

Note to Statement of Cash Flows

(Indirect method)

for the year ended 31 March 2013

Reconciliation of profit to cash provided by operating activities.


Profit $150,900

Adjustments to reconcile profit to net cash

provided by operating activities:

Depreciation expense $46,500

Loss on sale of machinery 7,500

Increase in accounts receivable (57,800)

Increase in inventory (9,650)

Increase in accounts payable 24,700

Decrease in accrued expenses payable (300)

Increase in prepaid expenses (2,400) 8,550Net cash provided by operating activities $159,450


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IN-CLASS PROBLEM (Optional)

PROBLEM SET A 11.8(a)

Swan Lake Cruises Ltd

Cash Flow Statement



Cash receipts from customers $246,000 (1)

Cash payments:

To suppliers $183,000 (2)

For operating expenses 33,000 (3)

For interest 2,000

For income taxes 12,000 (4) 230,000)


Cash flows from investing activities:

Sale of equipment 10,000

Purchase of motors (7,000)

Net cash provided by investing activities 3,000

Cash flows from financing activities:

Proceeds from issue of shares 5,000

Proceeds from issue of debentures 5,000

Payment of cash dividends (12,000)Net cash used by financing activities (2,000)

Net increase in cash 17,000

Cash at beginning of period 13,000

Cash at end of period $30,000

Computations:

(1) Cash receipts from customers:

Sales $250,000

Deduct: Increase in accounts receivable (4,000)

Cash receipts from customers $246,000

(2) Cash payments to suppliers:

Cost of goods sold $180,000

Deduct: Decrease in inventory (1,000)

Cost of purchases 179,000

Add: Decrease in accounts payable 4,000Cash payments to suppliers $183,000

(3) Operating expenses $28 000 + $16 000 $44,000


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Less depreciation (11,000)

$33,000

(4) Cash payments for income taxes:

Income tax expense $7,000

Add: Decrease in income taxes payable 5,000

Cash payments for income taxes $12,000

(b)

Swan Lake Cruises Ltd

Note to Cash Flow Statement


Reconciliation of profit to cash provided by operating activities.


Profit $17,000

Adjustments to reconcile profit to net cash

provided by operating activities:

Depreciation expense $11,000Increase in accounts receivable (4,000)

Decrease in inventory 1,000


Decrease in income taxes payable (5,000) (1,000)



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SESSION TWELVE

Chapter 9

Questions1. While this is generally true, more precisely a current liability is a debt that can reasonably be

expected to be paid within one year or the operating cycle, whichever is longer.

6. Aprovision is a liability for which the amount or timing (AASB 137 para 10) of the future sacrificeis uncertain. It requires estimation for recognition as a liability. An example is a provision forwarranty claims. A contingent liability is not recognised because they are not probable or areunable to be measured reliably, or both. A liability may be classified as a contingent liabilitybecause it is so uncertain that it cannot be measured reliably, or because it does not satisfy theprobability criterion, or if it is dependent upon the occurrence of a future uncertain event outsidethe control of the entity. An example of a contingent liability is an unresolved lawsuit broughtagainst the company. It is contingent upon the outcome of the court case.

BRIEF EXERCISE 9.1Fresno Ltd

(a) A note payable due in two years is a non-current liability.

(b) Part of the mortgage payable is a current maturity of long-term debt. This amount should be reportedas a current liability.

(c) Interest payable is a current liability, assuming it is due for payment within the next 12 months.

(d) Accounts payable is a current liability because it is due for payment within the next 12 months.

EXERCISE 9.9

Summary entry for claims during the year ended 31 December

Warranty Provision $85,000

Wages Payable $85,000

(To record work performed under warranty)

31 Dec Warranty Expense $75,000

Warranty Provision $75,000

(To adjust the liability for Warranty Provision account to total estimated liability forcontracts outstanding at balance date)

PROBLEM SET A 9.1

Cling-on Ltd

(a) Sept. 1 Inventory or Purchases ..................................... 16,000

Notes Payable .................................................. 16,000

30 Interest Expense............................................... 120

($16,000 X .09 X 1/12)Interest Payable ................................................ 120

Oct. 1 Climbing Wall ................................................... 10,000

Notes Payable .................................................. 10,000


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31 Interest Expense............................................... 220

($10,000 X .12 X 1/12 + $120)

Interest Payable ................................................ 220

Nov. 1 Vehicles ............................................................26,000

Notes Payable .................................................. 18,000

Cash at Bank .................................................... 8,000

Nov. 30 Interest Expense............................................... 430

($18,000 X .14 X 1/12 + $100 + $120)


Dec. 1 Notes Payable ..................................................16,000

Interest Payable................................................ 360

Cash at Bank .................................................... 16,360

31 Interest Expense ($100 + $210)........................ 310


(b)

Notes Payable

$ $

1/12 16,000

Clos. Bal. 28,000

1/9 16,000

1/10 10,000

1/11 18,000

44,000 44,000Op. Bal. 28,000

Interest Payable

$ $

1/12 360

Clos. Bal. 720

30/9 120

31/10 220

30/11 430

31/12 310

1,080 1,080

Op. Bal. 720

Interest Expense

$

30/9 120

31/10 220

30/11 430

31/12 310

$

Closing

Entry to

P/L summary

1,080

1,080 1,080

(c) Current liabilities

Notes payable ..................................................................................... 28,000


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Interest payable ................................................................................... 720

(d) Total interest expense is $1,080.

(e) The advantage of using notes payable for purchasing inventory is that the purchaser will probably

have a longer period of time to pay for the inventory and at a lower rate of interest that with the normalcredit terms for accounts payable.

The disadvantage is that interest will have to be paid on the notes whereas payment for inventory within

any discount period offered would not attract an interest charge.

PROBLEM SET A 9.8

(a)

WARRANTY PROVISION ACCOUNTSpare parts inventory (amount of

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