PART 1
Royal Oak Taxation Advisory Service has the following transactions for the month of December 2016 :
Dec. 1 Commenced business by depositing $50 000 in a bank account in the name of the business
2 Bought a vehicle for $40 000 paying a deposit of $15 000 cash and the balance on credit from Tirpitz Motors
4 Bought equipment on credit from Bismark Equipment $7 500
5 Provided services for week $4 400 cash
8 Paid 12 months Insurance premium in advance $3 600
9 Bought furniture on credit from Hood Furnishings $6 200
10 Paid Bismark Equipment amount owing and received a $300 discount for prompt payment
12 Provided services on credit to Yamato P/L $5 900
15 Paid wages $2 800 cash
16 Bought stationery supplies for cash $450
18 Paid motor vehicles expenses $1 300
19 Provided service for week $ 3 700 cash
22 Received payment from Yamato P/L $5 500 as full settlement
23 Paid rates & taxes $1 750 cash
25 Repayment of $5 000 to Tirpitz Motors
26 Services provided to Missouri Co. on credit $2 900
29 Vehicle repaired on credit Musashi Motors $1 750
30 Paid wages $2 700
31 Paid Hood Furnishings $6 000 after discount received
Required :
Prepare General Journal entries for all transactions for December, post the December journal entries to "T" ledger accounts in the General Ledger, and prepare a Trial Balance, of ledger account balances at 31 December 2016.
PART 2
A. Mississippi uses machinery to manufacture a product for sale.
The following data relate to the purchase of Machinery :
$
Freight paid 8 000
Applicable Sales Tax 16 000
Testing and adjusting costs 2 000
Invoice price 320 000
Cost of 12 month prepaid insurance
policy for first year of machinery use 3 500
Cash discount taken 6 400
Cost of insurance coverage on machine whilst in transit 1 000
Repair of damages to machine caused by business's employees during installation 5 400
Installation Costs 20 000
REQUIRED :
What do you understand regarding "the cost of acquisition" and "purchase consideration" ?
Calculate the amount at which the machinery should be recorded in the business accounts. Show ALL calculations.
In one or two short sentences (maximum) explain Why or Why Not you have included/excluded each and every item.
B. At 30 June 2015, the accounts of Graf Spee shows a building with a cost of $2 250 000 and accumulated depreciation of $1 625 000. The business entity uses the straight-line, or equal instalment, method to depreciate the building.
When acquired, the buildings useful life was estimated 40 years and its residual value at $250 000.
On 1 January 2016, Graf Spee made structural improvements to the building costing $670 000. Although the capacity of the building was unchanged, it is estimated that the improvements will extend the useful life of the building to 50 years, rather than the 40 years originally estimated.
The residual value remains at $250 000.
REQUIRED :
Calculate the number of years the building has been depreciated to 30 June 2015.
Calculate the building's depreciation expense for the years ending : 30 June 2016 and 30 June 2017.
C. Warspite Trading sells calculators and the proprietor, Mr Cunningham, consults you regarding a claim for inventory destroyed by fire at his shop on 13 October 2016.
Mr Cunningham always marks-up inventory at 66 2/3% to arrive at the selling price.
He supplies you with the following information :
$
Inventory ( 1 July 2016) 21 000
Purchases 1 July 2016 to 13 October 2016 430 000
Sales 1 July 2016 to 13 October 2106 600 000
Inventory salvaged 19 000
During August there was a sale of one week's duration during which he reduced all selling prices by 25%.
His turnover during the ‘sale' week was $100 000.
No adjustment has been made to the books in respect of the following :
i) On the night of 10 September 2016 thieves broke into the shop and stole a large quantity of calculators having a value, at selling price, of $20 000.
Mr Cunningham was not insured against losses of this nature.
ii) An assistant, since dismissed, is known to have stolen $1 000 of the cash takings during October 2016.
This money is irrecoverable.
iii) An invoice for $1 400 in respect of goods for resale purchased from New Jersey Supplies on 16 October 2016 was not recorded in the books.
REQUIRED: Calculate the cost of inventory destroyed by fire.