Reference no: EM131850544

QUESTION 1: Balance Day Adjustments

Arancina Pizza & Pasta Cantina Trial Balance 30 June 2017
	Debit ($)	Credit ($)
Cash at Bank	24 096
Shop Cleaning Expense	29 200
Water Expense	11 876
Gas Expense	12 517
Fiat Delivery Van	14 250
Sales Returns & Allowances	530
Electricity Expense	13 700
Shop Furniture	15 000
Marco, Capital		132 238
Chef's Wages Expense	20 730
Office Cleaning Expense	10 000
Interest expense	14 600
Shop Staff Wages Expense	24 545
Discount Received		1 290
Unearned Sales		4 335
Pizza Oven	9 150
Marco, Drawings	29 033
Accounts Receivable	3 325
Loan		177 943
Inventory (1 July 2016)	29 475
Purchases	126 500
Rent Expense	21 000
Advertising Expense	12 350
Sales		120 218
Accounts Payable		6 252
Office Supplies	1 175
Refrigeration Equipment	32 000
Discount Allowed	650
Cooking Oil Disposal Expense	6 342
Repairs and Maintenance Payable		5 375
Accumulated Depreciation - Refrigeration Equipment		16 313
Insurance Expense	1 920
Totals	463 964	463 964

Marco has emailed you the following list of account information related to the year ended 30 June 2017:

a) Chef's wages payable but not recorded as at 30 June are $1 430.

b) The Office Supplies on hand at 30 June 2017 was $421.

c) Rent was paid on 1 July 2016 for an 18 month period ending 31 December 2017.

d) The pizza oven was purchased on 1 March 2017 and will be depreciated at 20% per annum and will have no residual value (calculate and record the depreciation expense).

e) The bank has approved an overdraft facility for $3 000 for Arancina Pizza & Pasta Cantina.

f) The Refrigeration Equipment is expected to have a useful life of five years and have a $2 000 scrap value (calculate and record the depreciation expense for the year).

g) The 6 month Insurance policy (policy # 32 4558) of $1 920 was paid on 1 May 2017.

h) The Fiat Delivery Van was purchased on 1 November 2016 and is expected to have a useful life of four years and have a residual value of $250 (calculate and record the depreciation expense for the year - round up to the nearest dollar value).

i) On 30 June, Marco estimated 8% of Accounts Receivable will not be collected as this amount has been outstanding for 180 days.

j) $1 975 of the Unearned Sales were earned for catering at the Richmond Bocce club Annual General Meeting on 18 June 2017.

If your calculation results in an answer with decimal places please round to the nearest dollar i.e. 1.5 will become 2, 1.4 will become 1.

REQUIRED: It is now the end of the financial year and Marco requires you to undertake the following: Prepare the Balance Day Adjustment Journals for Arancina Pizza & Pasta Cantina where required. Include narration (explanation) for each journal entry.

QUESTION 2: Financial Statement

Mr Aspen owns and manages a plant nursery called "Totally Trees" specialising in the retail of trees to the public. The following Trial Balance for Totally Trees has been prepared at year end by Mr Aspen.

TOTALLY TREES - TRIAL BALANCE AS AT 30 JUNE 2017
	Debit ($)	Credit ($)
Accrued Accounting Wages		3 200
Cash at Bank	58 000
Depreciation Expense - Van	5 000
Accounts Receivable	76 000
Gardening Equipment	62 000
Sales		318 970
Nursery Rent Expense	24 000
Delivery Van	35 000
Freight Inwards	19 000
Unearned Revenue		3 100
Discounts Received		6 600
Accrued Van Maintenance Expense		1 900
Mr Aspen, Capital (1 July 2016)		346 150
Inventory (1 July 2016)	116 000
Term Deposit	130 000
Mr Aspen, Drawings	8 300
Allowance for Doubtful Debts		3 040
Prepaid Rent	2 000
Depreciation Expense - Garden Equipment	6 000
Van Maintenance Expense	10 000
Doubtful Debts Expense	3 040
Purchases	156 900
Accounting Wages	8 000
Freight Outwards	9 400
Accumulated Depreciation - Gardening Equipment		24 000
Advertising Expense	7 000
Accumulated Depreciation - Van		17 500
Discount Allowed	900
Sales Returns and Allowances	12 370
Accounts Payable		63 000
Wages Sales Staff	62 000
Mortgage		20 000
Purchases Returns and Allowances		3 450
Total	810 910	810 910

Additional Information:

• $5,000 of the term deposit is due to mature on 31 December 2017, the remaining amount of the term deposit will mature progressively after 1 July 2018.
• The inventory stocktake at 30 June 2017 was $128 600.
• $5 000 of the mortgage will be paid within the next financial year, the remaining amount of the mortgage will be paid progressively after 1 July 2018.
• The Unearned Revenue will be earned in the financial quarter ending 30 September 2017.
• Profit for the year ended 30 June 2017 is $18 010.

REQUIRED: Prepare a fully classified Balance Sheet in a narrative format and a Statement of Changes in Equity using the Trial Balance prepared by Mr Aspen above and the additional information provided.

QUESTION 3: Accounting Concepts

As a graduate accountant of Collins Chartered Accountants, you are frequently required to assist in stock takes for various clients. One of the very new clients to Collins Chartered Accountants is Mr Gruber who owns and operates quite a large bookshop and is considering opening another bookshop. He has been chatting to other bookshop owners and they have asked him whether he uses a periodic or perpetual inventory system. Mr Gruber does not know anything about either of these inventory systems and during a recent meeting he had with the Managing Partner of Collins Chartered Accountants (your boss) he asked if he could be sent some information regarding these two inventory systems. The Managing Partner is extremely busy so she has asked you to prepare a letter which covers the following:

REQUIRED: Please write a letter in your own words to the Managing Partner of your accounting firm explaining the following:

• Identify the two inventory systems.
• How Mr Gruber can determine which inventory system he is using in his bookshop.
• Identify which system provides more inventory information and control and explain why.
• Which inventory system would be most appropriate for Mr Gruber's bookshop and why.

Up to an additional 3 marks will be awarded for following the formatting requirements below.

Formatting hints:

• Date your letter 28th October 2017
• Address your letter to Natasha Collins (Managing Partner), Collins Chartered Accountants and Co. 64 Adelaide Terrace, Adelaide, SA, 5000
• Any formal letter format is acceptable
• Consider an appropriate way to sign off your letter
• Set out your letter with subheadings to separate each part of your letter as you address the criteria required

QUESTION 4: Cash Flow Statement

You are provided with the following financial information for Lime & Lemon Children's Toys Ltd:

LIME & LEMON CHILDREN'S TOYS COMPARATIVE BALANCE SHEETS AS AT DECEMBER 31
Current Assets	2017		2016
Cash on Hand	$1 200		$4 000
Cash at Bank	3 957		1 009
Accounts Receivable (net)	12 742		4 500
Inventory	28 000		18 000
Prepaid Expenses	1 650	$47 549	650	$28 159
Non Current Assets
Plant & Equipment	83 500		64 000
less Acc. Depreciation	(23 000)	60 500	(17 600)	46 400
Land		80 000		180 000
Total Assets		188 049		254 559
Current Liabilities
Bank Overdraft	6 402		-
Accounts Payable	3 325		2 800
Expenses Payable	780		790
Tax Payable	1 544	12 051	1 200	4 790
Non Current Liabilities
Bank Loan		20 000		20 000
Total Liabilities		32 051		24 790
Net Assets		$155 998		$229 769
Equity
Capital		155 998		229 769
		$155 998		$229 769

 

LIME & LEMON CHILDREN'S TOYS LTD INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31 2017
Net Sales		$122 742
Cost of Sales		45 200
Discount Received		280
Gross Profit:		77 822
Other Revenue:
Interest Revenue	40	40
		77 862
Expenses:
Selling & Admin Expense	20 068
Doubtful Debts Expense	354
Depreciation Expense	5 400
Interest Expense	3 800	29 622
Profit before tax		48 240
Income tax expense		4 032
Profit		$44 208

ANSWER THIS QUESTION ON THE PRO FORMA PROVIDED

REQUIRED: Prepare a Statement of Cash Flows in the pro forma provided below and show all calculations (an answer without supporting calculations will receive zero).

LIME & LEMON CHILDREN'S TOYS LTD Cash Flow Statement for the year ended 31 December 2017
	$	$
Cash Flows from Operating Activities
Receipts from customers
Payments to Suppliers & Employees
Cash generated from operations
Interest Paid
Income Tax Paid
Interest Received
Cashflows from Operating Activities
Cashflows from Investing Activities
Dividends Received
Purchase of Equipment
Proceeds from Sale of Land
Cashflows from Investing Activities
Cashflows from Financing Activities
Drawings
Net Increase (decrease) in cash held
Cash at start
Cash at end