Recording transactions
Peerless Company is a distributor of wide-screen, high-definition television sets and related equip- ment. The company was formed in September x1 and its balance sheet just prior to the start of trad- ing is as follows:
Peerless Company Balance sheet at 30/9/x1
|
Current assets
Cash
|
18,500
|
Current liabilities
Accounts payable
|
43,400
|
|
Advance to employee
|
300
|
Deposit from customer
|
800
|
|
Inventory Prepaid rent
(for three months)
|
38,000
6,000
|
|
44,200
|
|
|
62,800
|
|
|
|
Fixed assets
|
|
Shareholders' equity
|
|
|
Shop fittings
|
19,000
|
Share capital
|
54,000
|
|
Office equipment
|
7,400
|
|
|
|
Organisation costs
|
9,000
|
|
|
|
Total assets
|
98,200
|
Total equities
|
98,200
|
The company's first retail outlet opened its doors for business on 1 October. The company's trans- actions in October are summarised below.
1. TVs and videos are sold for 40,000 (euros), 22,000 on account, the balance for cash. Cash sales include delivery of the TV set to the customer who paid a deposit of 800 in September. The cost of items sold is 20,000.
2. The company collects 7,000 of amounts owed by customers.
3. It pays 34,000 to suppliers for inventory and office equipment it purchased on account in September.
4. The company has two employees. Each earns a salary of 1,000 in the month. Because of the 300 advance to one of them in September, salary payments in October are only 1,700.
5. Rent expense is recognised. Rent consists of a monthly fixed charge of 2,000 and a variable charge of 1.5% of sales revenue. The rent prepayment at end-September represents three months of the fixed charge which was paid in advance in late September. The variable charge is to be paid in cash.
6. The company recognises depreciation of 200 on the shop fittings and 100 on the office equipment. (The shop fittings are expected to have a 71/2-year life and salvage value of 1,000; the office equip- ment a six-year life and salvage value of 200. The straight-line method of depreciation is used. The assets are depreciated from the start of October when operations begin.)
7. Organisation costs are amortised at the rate of 100 a month.
8. The income tax rate is 40%. No tax is paid in October.
Required
(a) Record the above transactions and events in 1 to 8 on a worksheet.
(b) Prepare for the benefit of the company's management an income statement for October and a balance sheet at 31 October x1.