Reference no: EM132804845

HI5001 Accounting for Business - Holmes Institute

Question 1

Jim's Cleaning Services prepares financial statements at the end of each month. The following information is in relation to the month of July.
1. On 1 July, rent of $3,600 for the 6-month period ending 31 December is paid.
2. A 1-year insurance policy is purchased on 1 July for $1,560.
3. On 10 July, the Cross Hotel paid the business $2,800 in advance for doing their cleaning for the next 3 months. 30% of the cleaning work has been provided in the month of July.
4. The cleaning supplies of $2,340 was purchased on 15 July. The supplies account had a $260 debit balance on 1 July and $220 of supplies are on hand as at 31 July.
5. The business has two part-time employees who each earn $190 per day. They were both worked 16 days in the month. They were paid for the 14 days on 28 July, but not for the last 2 days for which they have worked after 28 July.

Required:
a) Record the above transactions occurred in the month of July in the general journal.
b) Prepare the necessary adjusting entries at the end of the month of July.

Question 2
The following information is produced by comparing the cash deposits and withdrawals recorded by the M&N Windows Ltd for the month with their most recent bank statement received at 30 June 2019:

a. M&N Windows Ltd' cash at bank ledger at 30 June 2019 is: $75,864
b. Credit balance as per bank statement as at 30 June 2019 is: $101,160
c. Bank statement shows an electronic transfer from a customer of $3,864
d. Deposits in transit, $12,540
e. Interest earned on bank account, $75
f. Unpresented cheques, $37,407
g. Service charge included in bank statement, $150
h. Cheque for insurance expense, $5,370 incorrectly recorded in books as $5,910
i. A dishonoured cheque written by a client Jim Smith, $3,900

The entity doesn't use special journals for record keeping. The entity prepares bank reconciliation statement at the end of each month.

Required:
a) Prepare a bank reconciliation statement for M&N Windows Ltd at 30 June 2019.
b) Discuss why a bank reconciliation is still necessary even most of the transactions take place using electronic transfer of funds nowadays.

Question 3

InvisiGuard Ltd sells security doors. Majority of its sales are on credit except small amount of cash sales each year. The accounting records at 30 June 2019 reveal the following. Ignore GST.

 

Credit sales (for the year of 2019)	$2,100,000
Cash sales (for the year of 2019)	20,000
Credit sales returns and allowances (for the year of 2019)	80,000
Accounts receivable (balance at 30 June 2019)	593,000
Allowance for doubtful debts (credit balance at 30 June 2019)	2,800

The company's yearly bad debts expense had been estimated at 2.5% of net credit sales revenue in the past. The management of InvisiGuard Ltd has decided to compare the current method with an ageing of accounts receivable method. The following analysis was obtained with respect to the accounts receivable.

 

		Balance	% of estimated uncollectable
Accounts not yet due		$351,200	1
Accounts overdue	10 - 30 days	92,000	3
	31 - 60 days	78,000	10
	61 - 120 days	40,800	30
	121 days and over	31,000	60
Total		593,000

Required:
a) Prepare the journal entries to adjust the Allowance for Doubtful Debts at 30 June 2019 under the following two methods.
i. the net credit sales method
ii. the ageing of accounts receivable method.
b) Prepare ledger account for the Allowance for Doubtful Debts account under both methods mentioned in a), using running balance format.
c) Assume that the allowance account had a debit balance of $980 at 30 June 2018, determine the bad debt expense for the year and the balance in the allowance account under ageing method.
d) Explain, with reference to your calculation, why the two different methods result in different balances.

Question 4

XY Ltd's sells T-shirts. It uses the periodic inventory system. It's inventory at the beginning of the month June and all purchases during the month of June 2019 are provided as below. Ignore GST.

 

Units            Total cost ($)
1/6	Beginning inventory	1050	18,900
10/6	Purchase	750	14,175
15/6	Purchase	450	8,910
23/6	Purchase	750	15,750
	Totals	3,000	$57,735

A physical count on 30 June verified that 975 units were on hand.

Required:
a) Determine the Ending inventory and Cost of Sales for the month of June, using the FIFO costing method.
b) If all inventories are sold in the same price of $50, prepare the relevant part of the income statement for the month of June.
c) Would you recommend the Perpetual Inventory System to the management of XY Ltd? Explain the reason for your recommendation.

Question 5

Club York is located in the center of Sydney. In a major refurbishment, it purchased a new sound system and a new lighting system on 1 March 2019.
• The sound system cost $35,000 to purchase and $4,500 to install. The lighting system cost
$55,000.
• The sound system has a useful life of 8 years and residual value $500. The lighting system has a useful life of 5 years and no residual value. Both are depreciated on a straight-line basis.

Club York's accounting period ends on 30 June each year. It has adopted straight-line method of depreciation.

Required:
a) What is the cost and the carrying value for the assets discussed above as at 30 June 2019?
b) Would Club York's profit be higher or lower for the year ending 30 June 2019 if it had adopted the diminishing value method of depreciation? Explain.
c) On 1 September 2019, it was found that the lighting system was no longer flashing ultraviolet rays in time with the music (as it should). $900 was spent to have this fixed. On 1 October 2019,
$6500 was spent to give the sound system a heavier bass beat. What is the appropriate accounting treatment for the events that occurred on 1 September 2019 and 1 October 2019? Explain.
d) Outline the main factors to be considered in selecting an appropriate depreciation method.

Question 6

What are the three elements of the definition for liabilities? List from the following items that are classified as liabilities and explain why, or why not, they are classified as liabilities:

a) Provision for warranty
b) Unearned revenue
c) GST payable
d) Allowance for doubtful debts
e) A disputable lawsuit

Attachment:- Accounting for Business.rar