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Large Mart_Financial Accounting




Question;Due date: Friday 9th May 2014 at 11:59pm;Large Mart has previously attempted to develop a ?study pillow? which;would have allowed students to upload study material into their brain whilst;sleeping. However, Large Mart has recently discovered that an American company;called Bpple already holds a patent for this type of device. As a result, Large;Mart has given up on its development attempts and decided to sell the Bpple;product, which is called iSLEEP.;In order to sell the iSLEEP, Large Mart has rented a second store in;Armidale. Large Mart signs a two year renting contract on 1st May;201x. The rent for the store will be $5,000 per month and the renting contract;requires Large Mart to pay rent at the beginning of each month, starting on 1st;May 201x. The rent that is paid on the beginning of each month is for the;following month. For example, the payment on 1st May is for the;month of May whilst the payment on 1st June will be for June.;As soon as the renting contract for the new store is signed, Large Mart;employs two UNE students (Chuck and Morgan). Chuck and Morgan are employed for;30 hours each month. Their job is to organise a iSLEEP fan site on Facebook.;Chuck and Morgan start their jobs on 1st May 201x and will be paid;$30 per hour. On 31st May 201x the HR department tries to pay Chuck;and Morgan for the work they completed during the month. However, the HR;department notices that Chuck and Morgan have not provided Large Mart with;their bank account details and, as a result, Large Mart is unable to pay Chuck;and Morgan for their work. After the HR department sends Chuck and Morgan and;email, they forward their bank account details to Large Mart on 10th;June 201x and Large Mart is finally able to pay Chuck and Morgan for the work;they have completed in May 201x. Large Mart make the payment on 10th;June 201x.;The furniture in the new store is designed and manufactured in China. An;important part of the store design is a big bed on which customers can lie to;test the iSLEEP before purchasing it. The bed is delivered on 1st;June 201x. On that day, Large Mart also receives an invoice of $40,000 from the;Chinese designer/manufacturer of the bed. When the bed was produced in China;the director of the Large Mart sales department travelled to the Chinese;designer/manufacturer to discuss solutions to production problems. The director;of the sales department did not make any other stops during his trip to China;and only met with the design/manufacturing team of the bed. The overall;expenditure associated with the sales director?s visit to China was $12,000.;After the new store is completed, Large Mart orders 50 iSLEEPs from;Bpple for a price of $800 per iSLEEP, and these iSLEEPs arrive on 1st;June 201x, and are paid via bank transfer 10 days later after Large Mart;deducts a 10% early payment discount. After this initial purchase, the;following purchase and sales transactions take place within the new store;?;On 5th June 201x, Large Mart purchases another 60 iSLEEPs from Bpple for;a special price of $750 per iSLEEP. The iSLEEPs arrive on the same day and;Large Mart pays this new delivery of iSLEEPs on the next day without deducting;any early payment discounts.;?;On 7th June 201x UNE purchases 100 iSLEEPs for the library;for a price of $2,500 per iSLEEP on credit. Two days later UNE returns 20 of;the purchased iSLEEPs because there is not enough space in the library for all;100 iSLEEPs. UNE then pays the remaining iSLEEPs on 10th June 201x;after deducting an early payment discount of 5% from the invoice.;?;On 12th June 201x, Large Mart purchases a further 50 iSLEEPs;for a price of $700 per iSLEEP. The iSLEEPs arrive on the same day and Large;Mart pays the invoice two days later after deducting a 10% early payment;discount.;On 1st July 201x, Large Mart leases a company car for the;service department of the new store (called the ?Nerd Herd?). The duration of;the lease is 7 years, and the car has an expected useful life of 8 years. The;lease contract requires Large Mart to pay $5,000 at the time the lease is;signed. This payment is made via a bank transfer. A further $10,000 must be;paid (also via bank transfer) on 30th June of each year during the;lease period. The lease contract states that Large Mart can cancel the lease at;any time during the lease period after paying a penalty that is equal to 50% of;the outstanding lease payments. If Large Mart does not cancel the lease, Large;Mart will take over the ownership of the car at the end of the lease period.;The interest rate implicit in the lease is 19%. Large Mart decided to enter;into the lease agreement instead of purchasing the car because the purchase;price would have been $47,000 and Large Mart did not have sufficient cash;resources to make such a purchase at that time.;Please answer the following questions about the scenario outlined above;Question 1) Provide all journal entries that are necessary in the books of Large;Mart to account for the renting contract and all associated payments for the;month of May 201x (and explain your journal entries) (1.5 marks).;Question 2) Provide all journal entries that are necessary in the books of Large;Mart to account for the work that Chuck and Morgan have done during the month;of May 201x as well as the payment of wages to Chuck and Morgan on 10 June 201x;(and explain your journal entries) (2 marks).;Question 3)Decide whether or not the expenditures associated with the China trip of;the sales director are part of the cost of the bed (and explain your;decision) (0.5 marks) and provide all journal entries that are;necessary in the books of Large Mart to account for the purchase and delivery;of the bed, assuming that all costs associated with the bed will be paid at a;later date (1.0 mark).;Question 4) Provide all journal entries that are necessary in the books of Large;Mart to account for all inventory purchase and sales transactions (including;the payment and receipt of funds) of the new store, assuming that Large Mart;uses a perpetual inventory system on a first-in-first-out basis (5.0 marks).;Question 5)Calculate the total Cost of Goods Sold (COGS) for the financial year;ended 30 June 201x (1.0 mark), the value of all iSLEEPs that remain in;the inventory account at the end of the year (the 30 June 201x) (1.0 mark);and the total amount of revenue that Large Mark collected through the sale of;the iSLEEP during the year ended 30 June 201x (0.5 marks) (and;outline all necessary calculations).;Question 6) Determine whether the lease of the company car is an operating lease or;finance lease and provide a detailed explanation for your decision (2.5;marks).


Paper#37424 | Written in 18-Jul-2015

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