On September 1st, 2007, Mr. Afnan organized a business called Tony's Rentals for the purchase of operating an equipment rental yard. Mr. Afnan's new business was able to begin operations immediately by purchasing the assets and taking over the location of Rent-IT, an equipment rental company that was going out of business.
The company closes its accounts and prepares financial statements at the end of each month.
Part A:
During September, company entered into the following business transactions/events:
Sept 1, Mr. Afnan deposited Rs. 1, 00,000 cash name of Business, Tony's Rentals.
Sept1, Paid Rs. 9000 to Mr. Irfan as three month's advance rent on the rental yard and office formerly occupied by Rent-IT.
Sept 1, Purchased for Rs. 180,000 all the equipment from Rent -IT. Paid Rs. 70,000 cash and issued a one year notes payable for Rs. 110,000, plus interest at the annual rate of 9%.
Sept 4, Purchased office supplies on account from Modern office Co; Rs. 1,630. Payment due in 30 days (these supplies are expected to last for several months; so debit the office supplies asset account)
Sept 8, Received Rs. 10,000 cash from McBrayan Construction Co. as advance payment on rental equipment.
Sept 12, Paid salaries for the first two weeks in September Rs. 3,600
Sept15, Excluding the McBrayan Construction Co advance, equipment rental fees earned during the first 15 days of September amounted Rs. 6100, out of which Rs. 5,300 was received in Cash.
Sept17, Purchased on account from the Earth Movers, Inc., Rs. 340 in parts needed to repair a rental tractor. Payment is due in 10 days.
Sept23, Collected Rs. 210 of accounts receivable recorded on September 15.
Sept 25, Rented a backhoe (digging machine) to Mission Landscaping at a price of Rs. 100 per day, to be paid when the backhoe is returned.
Mission landscaping expects to keep the backhoe for about two or three weeks.
Sept 26, Paid biweekly salaries, Rs.3, 600.
Sept 27, Paid the account payable to the Earth Movers, Inc., Rs.340.
Sept 28, Mr. Afnan withdrew Rs. 2,000 cash from business to pay the rent on his personal residence.
Sept 29, Purchased a 12 month public -liability insurance policy for Rs. 2,700.
The policy protects the company against the liability for injuries and property damage cause by its equipment. However the policy goes into effective on October 1.
Sept 30, Received a bill from Universal Utilities for the month of September Rs.270. Payment is due in 30 days.
Sept 30, Equipment rental fees earned during second half of September and
received in cash amounted to Rs. 8,450.
Data for adjusting entries
a. The advance payment of rent on September 1st covered a period of three months.
b. Interest accrued on the notes payable to Rent-IT amounted to Rs. 825 at September 30.
c. The Rental Equipment was depreciated by the straight line method over a period of 10 years.
d. Office supplies on hand at September 30 are estimated at Rs. 1100.
e. During September, the company earned Rs. 4, 840 of the rental fees paid by McBayran Construction Company on September 08.
f. As of September 30, Tony's Rental has earned five days' rent on the backhoe rented to Mission Landscaping on September 25.
g. Salaries earned by employees since the last payroll date (September 26) amounted Rs. 900 at month end.
Part B:
The company's most recent bank statement reports the following information.
(Ignoring above information)
Particulars Rs.
Balance as per cash book 5877.
Cheques issued but not presented for payment 2013
Cheques deposited but not cleared up to 31-10-07 1419
Bankers had wrongly debited the firm's account with Rs. 225 which
was not rectified until 31st October
Part C
Mr. Afnan was running a manufacturing concern as a side business. Following
are information of that business.
Sep 1 Beginning balance: 800 units @ Rs. 6 / unit.
Sep 4 Received 200 units @ Rs. 7/unit.
Sep 10 Received 200 units @ Rs. 8/ unit.
Sep 11 Issued 800 units.
Sep 12 Received 400 units @ Rs. 8 /unit
Sep 20 Issued 500 units.
Sep 25 Received 100 units @ Rs. 8/ unit.
Sep 28 Received 600 units @ Rs. 9/unit.
Direct labor for the week totaled Rs.6, 000 and factory overhead is applied at the
rate of 75% of direct labor cost. 1,000 units of the product were manufactured out
of which 800 @ Rs. 40 units sold. There were no beginning inventories of work in
process and finished goods.
Requirement
From Part A:
(1) State whether all the events (September 1st to 30th September) are
transaction or not to Mr. Afnan's business. Mention the reason if an event is why
not transaction.
(2) From the transactions of the month September (excluding adjusting entries), state
the nature of accounts and state which account will be debited and which account will be
credited.
Follow the given format to complete the this requirement.
Date Accounts
involved
Nature of
account
Debit
Rs.
Credit
Rs.
Sept 1 Cash
Capital
Asset
Owners Equity
100,000
100,000
Increase in asset
Increase in
owners equity
(3) Journalize the transactions of September 01st to September 30th.
(4) Post to ledger accounts
(5) Prepare trial balance
(6) Pass adjusting entries
(7) Prepare adjusted Trial balance
(8) Income Statement for the month of September 30 and Balance Sheet as on
September 30.
From Part B
Prepare Bank Reconciliation Statement as on 30th September
From Part C
(a) Prepare store ledger card under FIFO method by using perpetual inventory system.
(b) Calculate cost of ending inventory and Gross profit/ Gross Loss.