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ACG12 Financial Accounting I Assignment 1

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solution.


Question

Assignment 1 – Due 29th December 2013 (11:00pm Adelaide time)

 

 

Compu-sell Enterprises are preparing their financial reports for the year ending 30th June

 

 

2013. Compu-sell specialises in selling new and used computers. The owner of Compu-sell

 

 

has prepared the financial reports himself. Unfortunately, the owner has not studied

 

 

accounting and believes he made a number of mistakes when preparing the end of year

 

 

financial reports. He has asked you for assistance in preparing the financial reports. You are

 

 

given all of the information used to prepare the financial reports for the year ending 30th

 

 

June 2013. The owner was not sure about adjusting entries and wants you to make sure they

 

 

have all been recorded correctly. He would like you to process any adjustments that are

 

 

deemed necessary. During your investigation you have identified the following issues

 

 

which may require further action:

 

 

(a) The telephone bill for the shop was still owing for the month ending 30th June

 

 

2013. The bill was received in the mail on the 21st of June but because everyone

 

 

was so busy, the bill was not paid or recorded in the financial reports for the year

 

 

ending 30th June. The amount shown on the bill was $315.

 

 

(b) All non-current assets purchased by the business are depreciated using straight

 

 

line depreciation as this is the only method the owner of Compu-sell has learnt.

 

 

(Show your depreciation journal entries in (b)).

 

 

(c) Allowance for doubtful debts has not been recorded for the year ending 30th June

 

 

2013. Credit sales for the year ending 30th June 2012 were $360,000 and

 

 

$410,000 for the year ending 3oth June 2013. The allowance for bad debts is

 

 

estimated as 2% of credit sales. Credit sales make up 70% of total sales.

 

 

(d) During the year, the owner took home some office supplies (which had

 

 

previously been recorded in the books as a current asset) for personal use (worth

 

 

$800). The owner recorded a debit to the “Miscellaneous Expenses” account and

 

 

a credit to “Drawings”.

 

 

(e) Office furniture was purchased by the business for $8,200 cash on the 1st of

 

 

March 2013. You have checked and the purchase was recorded correctly. It is

 

 

policy for the owner to replace office furniture every 3 years and give the old

 

 

furniture away to charity for free at the end of its useful life of three years. The

 

 

owner has not recorded anything else relating to this non-current asset for the year

 

 

ending 30th June 2013.

 

 

ACG12 Financial Accounting I – Assignment 1, SP4 2013

 

 

(f) Compu-sell received $2,000 cash from a customer on the 15th of June 2012 as

 

 

part payment for a sale of a computer which the customer purchased from

 

 

Compu-sell and was recorded as a debit to Cash at Bank and a credit to Unearned

 

 

Income. The total sale price was $3,500 and the computer was delivered to the

 

 

customer on the 4th of July 2012. The customer paid the balance owing once the

 

 

computer was delivered. A review of the records shows that the payment by the

 

 

customer of $1,500 was not recorded. The $2,000 was also still showing as

 

 

unearned income of $2,000 in the trial balance as at 30th June 2013.

 

 

(g) Rent for the office (where the administrative staff work) for 6 months covering

 

 

March – August was paid on the 1st of March 2013. The amount paid was $5,100.

 

 

The only reference to this payment is a Rent Expense account showing $5,100”

 

 

(you can assume the cash was correctly credited for $5,100). No other entries can

 

 

be found associated with this rental payment at the 30th of June 2013.

 

 

(h) The records show that on the 1st of February 2013, the owner purchased a new

 

 

microwave oven for the staff to use in the staffroom. He purchased the microwave

 

 

from his own personal bank account and gave the microwave to the business. The

 

 

microwave will be used evenly for the remainder of its useful life (another 6

 

 

years). He recorded the contribution of the microwave to the business by the

 

 

owner as a debit to “Miscellaneous Income” and a credit to “Capital”. The

 

 

microwave was valued at $1,200. Nothing else has been recorded in relation to

 

 

this microwave in the year ending 30th June 2013.

 

 

(i) Staff employed by Compu-sell are paid using commission. Commission is

 

 

calculated as 8% of sales and is recorded at the end of the financial year (that is,

 

 

on the 30th of June). The owner has forgotten to record the commission on sales

 

 

for the year ending 30th June 2013.

 

 

(j) The monthly bank statement for the month of June shows that interest earned and

 

 

received on the bank account was $120 for the month of June. The bank statement

 

 

also indicates that bank fees paid for June were $85. Neither of these items has

 

 

been recorded by the owner of Compu-sell. The bank statement also shows that a

 

 

customer used direct deposit to pay for the amount owing for a credit sale made

 

 

by Compu-sell on the 10th of June 2013 (You can assume that the sale was

 

 

recorded correctly). The amount paid by the customer was $1,900 and was paid

 

 

using an electronic transfer by the customer directly into the bank account of

 

 

Compu-sell. Compu-sell has only just found out about receiving the cash when

 

 

they received the bank statement.

 

 

(k) Compu-sell hired a part time accountant at the beginning of June 2013. The

 

 

accountant is being paid $2,000 per month. No entry has been processed for the

 

 

salary of the accountant for June – the accountant was paid on the 30th of June

 

 

2013.

 

 

Continued over the page…

 

 

ACG12 Financial Accounting I – Assignment 1, SP4 2013

 

 

(l) Rent for the shop (where the business operates and generates income) for 6

 

 

months covering April – September was paid on the 1st of April 2013. The

 

 

amount paid was $9,600. A debit to “Prepaid Rent” and a credit to “Cash at

 

 

Bank” was recorded on the 1st of April 2013. On the 30th of June the owner of

 

 

Compu-sell found a new shop in a very popular shopping complex which was

 

 

offering a long term rental contract at a better price. Therefore, an agreement was

 

 

signed for the new shop to be rented for the 12 months from the 1st of July 2013

 

 

until the 30th of June 2014 – payment was made on the 30th of June 2013 for 12

 

 

months. The inventory was moved out of the old shop on the 28th of June 2013

 

 

and the old shop would no longer be used for anything from the 1st of July – 30th

 

 

of September. The old shop was left empty for the remainder of the life of the

 

 

rental agreement (ie July – September 2013) and the shop would no longer be

 

 

used to help contribute any future income to the business. The new shop was

 

 

rented for $900 per month and nothing had been recorded yet for the payment of

 

 

the rent for the new shop.

 

 

(m) Compu-sell uses a periodic inventory system to record inventory. The accounting

 

 

records indicate that opening inventory for the year ending 30th June 2013 was

 

 

$80,900. A physical stocktake on the 30th June 2013 indicated that inventory on

 

 

hand was $80,100. The owner did not make any changes to the financial reports

 

 

because he was unsure what to do. He has made a note in the financial reports to

 

 

ask you whether he needs to account for the discrepancy between the inventory

 

 

figures.

 

 

(n) “Office supplies” used during the year amounted to $1,030. The only reference to

 

 

Office Supplies in the trial balance at the 30th of June is the “Office Supplies”

 

 

account which has a balance of $1,340.

 

 

(o) Compu-sell paid $1,200 for advertising on the local radio on the 1st of June 2013.

 

 

The advertising will occur on the 1st Tuesday of each month for June – August

 

 

2013. The amount paid was recorded as a debit to “Advertising Expense” and a

 

 

credit to “Cash at Bank” for $1,200 on the 1st of June.

 

 

(p) Office furniture (a chair) was purchased by the business on the 30th of June 2013.

 

 

The value of the purchase was $100 cash. The $100 has been recorded as a debit

 

 

to the “General Expense” account and a credit to “Cash at Bank” because the

 

 

owner thought the amount was too small to record it as an asset. You have been

 

 

asked by the owner to provide a brief explanation as to why it is/is not appropriate

 

 

to record the $100 as a General Expense. You are encouraged to look at your

 

 

notes from ACG11 Accounting for Business in relation to the Conceptual

 

 

Framework, to answer this question.

 

 

Continued over the page…

 

 

ACG12 Financial Accounting I – Assignment 1, SP4 2013

 

 

(q) Unless otherwise stated, depreciation has already been recorded for all noncurrent

 

 

assets and you have checked the records and are satisfied that the

 

 

calculations for depreciation for the non-current assets are correct.

 

 

Additional Notes:

 

 

? For the purposes of this assignment you are not required to account for

 

 

GST

 

 

? No narrations are required for the General Journal Entries

 

 

? If you believe that no entry is required for any of the items shown

 

 

above, please write “No entry required” as your answer

 

 

? If in your opinion, no entry is required for any of the items above,

 

 

please provide a brief explanation using your knowledge of the

 

 

conceptual framework (eg definitions, recognition criteria,

 

 

assumptions etc)

 

 

? No entries should be dated earlier than 30th of June. All of your

 

 

entries are occurring on balance date – if you think something should

 

 

have been recorded at an earlier date and it hasn’t been recorded,

 

 

the date you should use is still the 30th of June.

 

 

REQUIRED

 

 

Prepare the general journal entries to make (if) necessary,

 

 

adjustments/corrections for the information presented to you above.

 

 

HINT: If you believe an entry is not required (that is, the information has been

 

 

recorded correctly), please indicate in your answer why you think that an entry

 

 

is not required. You are encouraged to refer to your assumed knowledge from

 

 

ACG11 and the Conceptual Framework wherever possible.

 

 

Total Marks for Assignment – 50 Marks

 

 

IMPORTANT: STUDENTS ARE ENCOURAGED TO READ THROUGH

 

 

ALL OF THE INFORMATION IN THE QUESTION ABOVE FIRST

 

 

BEFORE ANSWERING THE REQUIREMENTS OF THE QUESTION.

 

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