Prepare an income statement for the month of october

Assignment Help Managerial Accounting

Reference no: EM131080848

Assessment Description-

A comprehensive accounting exercise designed to integrate your knowledge of accounting systems and the accounting cycle.

Group Assignment Scenario:

Psyche Books Ltd is a bookshop specialising in psychology textbooks. Psyche Books has the following balance sheet as at 30 September 2012:

Account name	Account no.		$
Assets
Current assets
Cash	1010		106 000
Accounts receivable	1020		147 000
Allowance for doubtful debts	1030		(14 400)
Inventory	1040		251 000
Prepaid insurance	1050		12 000
Prepaid rent	1060		45 000
Noncurrent assets
Buildings	1100	1 400 000
Accumulated depreciation - buildings	1105	(175 000)	1 225 000
Motor vehicle	1200	45 000
Accumulated depreciation - motor vehicle	1205	(9 000)	16 000
Total assets			1 807 600
Liabilities
Current liabilities
Accounts payable	2010		94 000
Interest payable	2020		48 000
Income tax payable	2030		47 000
Salaries payable	2040		25 000
Provision for employee entitlements	2050		14 000
Accrued expenses	2060		12 400

Additional information:

1. Psyche Books uses perpetual inventory systems and all its textbooks are sold at a 30 per cent mark- up.

2. Buildings are depreciated at 2.5 per cent p.a.

3. Motor vehicle has a useful life of 10 years and is depreciated using straight-line method.

Psyche Books uses the following chart of accounts:

Account name	Account no.	Account name	Account no.
Cash	1010	Share capital	3010
Accounts receivable	1020	Retained earnings	3020
Allowance for doubtful debts	1030	Sales	4000
Inventory	1040	COGS	5010
Prepaid insurance	1050	Interest expense	5020
Prepaid rent	1060	Income tax expense	5030
Prepaid advertising	1070	Salaries expense	5040
Buildings	1100
Accumulated depreciation - buildings	1105	Sundry expenses	5060
Motor vehicle	1200
Accumulated depreciation - motor vehicle	1205	Advertising expense	5070
Accounts payable	2010	Insurance expense	5080
Interest payable	2020	Rent expense	5090
Income tax payable	2030	Bad debts expense	5100
Salaries payable	2040	Inventory devaluation expense	5110
Provision for employee entitlements	2050	Depreciation expense -buildings	5120
Accrued expenses	2060	Depreciation expense -motor vehicle	5130
Bank loan	2100	Profit and loss summary	6000

The following events took place in October 2012:
01/10/12	Paid salaries.
03/10/12	Paid accrued expenses in full
06/10/12	Credit sales $78650.
07/10/12	Cash sales for the week amounted to $17849.
08/10/12	Paid interest on bank loan. as well as $12000 cowards the principal.
11/10/12	Paid $2000 for an advertisement in a local newspaper. The advertisement Is going to be published every Saturday for 8 weeks, starting on 13/10/12.
12/10112	Received $109456 from debtors.
14/10/12	Cash sales for the week amounted to $9815.
15/10/12	Paid $86 250 to creditors.
16/10112	Ordered $117 920 worth of inventory.
18/10/12	Credit sales $104546.
21/10712	Received the order placed on 16/10/12. Cash sales for the week amounted to $1534.
25/10 12	Accounts receivable of $14 230 were established to be uncollectable and were written off.
28/10/12	Paid income cite to ATO in full. Cash sales for the week amounted to $819.
29/10112	Received 86 000 from debtors
30/10/12	One of Psyche Books' employees decided to take his annual leave: he was paid $5500.

At the end of the month the following events occurred:

1. Some of the stock of Psyche Books' was recorded at $5000 but was established to have a net realisable value of $200.

2. Interest on bank loan accrued at the end of the month is $46000.

3. Depreciation was charged to the buildings and motor vehicle at the end of the month.

4. Monthly rent for Psyche Books' head office was $5000 and is payable on the first of every month in advance.

5. Prepaid insurance was originally for two years, purchased on 1 January 2012.

6. The company policy is to keep allowance for doubtful debts at the end of the month equal 3 per cent of total credit sales for the month.

7. Owed salaries at the end of the month: $22500.

8. Electricity charges for the month are estimated to be $2760; phone charges for the month are estimated to be $8900.

Assignment Requirements:

Required:

1. Prepare journal entries for the above transactions.

2. Create ledgers (T accounts) for all accounts as per chart of accounts

3. Enter the opening balances in the ledger accounts and post the journal entries to the ledger.

4. Prepare and post the adjusting entries.

5. Prepare pre-closing trial balance at 31 October 2012.

6. Prepare closing entries.

7. Prepare post-closing trial balance.

8. Prepare an income statement for the month of October 2012 and

9. Prepare a balance sheet as at 31 October 2012.

10. Prepare reversing entries.

Reference no: EM131080848

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