Reference no: EM132372244

Question 1 - Retail operations and retail inventory

'Little Red Riding' began business on 1 June 2019. The business is a partnership, between Mr Wheeler and Mrs Wheeler. The business will sell children's bicycles at the local markets. The business is not registered for GST. The following transactions occurred during June 2019:

Mr and Mrs Wheeler have come to you for assistance, as they would like to use the perpetual inventory system and the First-in-first-out (FIFO) costing method, but are not sure how to set this up.

Required:

i) Prepare an Excel worksheet for each of the bicycle lines for June (one for the small bicycles, and one for the large bicycles) using the FIFO costing method to keep track of the number of bicycles purchased, bicycles sold, bicycles on hand, cost of goods sold and gross profit made.

ii) Prepare journal entries (including any adjusting entries) for all of the business's transactions for June (using the perpetual inventory system and FIFO costing method). Include dates, references and narrations.

iii) Prepare T-accounts in an Excel spreadsheet, and post all of the above journal entries to the T-accounts. Include dates and references for each entry. Total all of the T-accounts to determine their balances at the end of the June 2019.

iv) Prepare the 'Adjusted Trial Balance' in an Excel spreadsheet as at 30th June 2019. Use formulas to generate all of the figures in the 'Adjusted Trial Balance' from the balances in the T-Accounts.

v) The business has a year-end of 30th June. Prepare the closing entries as at 30th June 2019.

Please also refer to the 'Requirements' section below for additional submission and spreadsheet requirements.

Question 2 - Bank reconciliations and cash

This question continues on from question 1 above.

It is now September 2019, and two months have passed since you first met with Mr and Mrs Wheeler to assist them with implementing their inventory system and preparing their accounting records.

They have come to you for some assistance as the balance in the 'bank' T-Account at the end of August 2019 doesn't agree with the closing balance on the August bank statement... and they are not sure what they have done wrong.

The August 2019 bank statement appeared as follows:

Little Red Riding's accounting records for August 2019 showed an opening balance for the 'bank' account of $12,060, which agreed with the bank statement at 31 July 2019. Following is a summary of deposits and withdrawals recorded by Mr and Mrs Wheeler in their accounting records during August:

The bank did not make any errors.

Required:

i) Prepare a letter to Mr & Mrs Wheeler, explaining why the bank balance in the ledger account (or T-Account) won't always equal the balance on the bank statement on a particular date, and common reasons for differences. Also provide an introduction and overview of bank reconciliations - What is a bank reconciliation? What is its purpose? How is it prepared?

ii) Prepare the bank reconciliation for Little Red Riding at 31 August 2019.

iii) Prepare the journal entries to correct any errors made by Little Red Riding, and to record transactions that have not yet been entered into the business's accounting records. (Note: The correction of any errors relating to the recording of cheques or EFT payments should be made to 'Accounts payable'. The correction of any errors relating to deposits (other than interest received) should be made to 'Accounts receivable'.)

iv) Prepare the 'bank' T-Account account for August 2019, in order to determine the balance in the ledger account after the above journal entries have been recorded and posted.

Question 3 - Internal controls

This question continues on from question 1 and question 2 above.

It is now July 2020, and Mr and Mrs Wheeler have been very successful in growing the business of Little Red Riding. The business now operates at 3 markets in the region, and employs 4 employees (Mr and Mrs Wheeler sell bicycles at one local market each week, and 2 employees are assigned to sell bicycles at the Bidgee Markets, and 2 employees are assigned to sell bicycles at the Junee markets).

Mr and Mrs Wheeler have come to you for advice, as they appear to be having problems with their inventory and/or cash receipts. They have been keeping track of inventory using the two worksheets that you showed them (in Question 1(i) above). They really like how it keeps track of inventory on hand, and they tell you how much they love not having to count inventory each and every week after the markets to see what inventory is left.

When they completed the stocktake on 30 June 2020, the closing balance of inventory in each worksheet didn't match with the actual number of small and large bicycles on hand. The worksheets showed that the closing inventory was 58 small bicycles, and 46 large bicycles. The stocktake showed that the business actually had 42 small bicycles and 30 large bicycles.

You review their inventory worksheets, and there are no errors in their worksheets... so it appears that cash takings and/or some bicycle have been stolen. You also review the three cash receipt books (one used at each of the three markets), and the amount of cash takings banked for the year was $300 less than the takings as per the cash receipt books.

Mr and Mrs Wheeler are unsure what has happened.

Required: Undertake some research on internal controls and employee theft.

Prepare a business report on internal controls for Mr and Mrs Wheeler. In your business report:

• Explain what internal controls are, and the importance of implementing internal controls to safeguard the business's assets;
• Discuss the risk of employee theft, and how big of a problem employee theft is in Australia;
• Explain three possible ways that employees could have stolen cash and/or bicycles from the business without Mr and Mrs Wheeler realising;
• Discuss three controls/procedures that Mr and Mrs Wheeler should implement in their business to help prevent employee theft.

(Word guide: 1,500 - 2,000 words).

Question 4 - Property, plant and equipment

This question continues on from question 1, 2 and question 3 above.

Little Red Riding purchased a 3 tonne Isuzu truck on 1st July 2020, for $45,000, funded via a bank loan. The truck will be used to store and transport bicycles to and from each of the weekly markets. Mr and Mrs Wheeler have contacted you to find out how they need to account for depreciation. They would like to use the cost model, but don't have any understanding of the straight-line method, units-of-production method and reducing balance method. The truck has an estimated useful life of ten years (300,000 kilometres), and the estimated residual value is $10,000.

Mr and Mrs Wheeler estimate that the truck will travel 20,000km/year in years 1 - 3, 30,000km/year in years 4 - 7, and 40,000km/year in years 8 - 10.

Required:

Prepare a memo to Mr & Mrs Wheeler, explaining what depreciation is, and how depreciation is calculated under each of the three methods. To illustrate the differences in the annual depreciation expense to Mr & Mrs Wheeler, prepare a depreciation schedule (for the entire useful life of the truck) using each of the three methods. When preparing the depreciation schedule using the reducing balance method, use 2 times the straight-line rate. Ignore any GST. Show all relevant workings.

Presentation

It is essential that presentation of assignments adheres to accepted standards in relation to neatness and layout, as you are practicing to present material in a work situation.
For spreadsheet questions, ensure that you adhere to the spreadsheet requirements (refer to the 'Requirements' section below).
For questions that require you to prepare a business report, your report should include a title page, executive summary, table of contents, introduction, body, conclusion, recommendations, and reference list.
You need to provide references and prepare a reference list using the APA referencing style with your assignment. Note: when preparing a business report, include a reference list as part of the business report. You need to provide a reference whenever you draw on someone else's words, ideas or research. You should also provide references for any graphic information you use. Films, television programs, personal communications and online sources also need to be referenced.

Spreadsheet requirements:
1. For good spreadsheet design, it is very important that you have completely separate data and solution/report areas. A good spreadsheet solution format is to key in the question in a structure which allows the solution to be completely formula driven. There should be no data in the report/solution area.
2. Name the worksheet tag(s) at the bottom of the Excel screen with the question number. Use a separate worksheet for each question that needs to be completed in Excel. See examples in the 'Spreadsheet Advice' PDF in the 'Resources' folder on Interact.
3. Where appropriate, use the 'IF function' to provide built in checks of balances, net profit/net loss etc.
4. We have provided spreadsheet examples to guide you in the 'Spreadsheet Advice' PDF document in Interact. Also consider using the spreadsheet templates available with your text and other online spreadsheet advice, but note that the text templates do not comply with all of the assignment spreadsheet requirements above.