QUESTION 1: Balance Day Adjustments
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Arancina Pizza & Pasta Cantina Trial Balance 30 June 2017
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Debit ($)
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Credit ($)
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Cash at Bank
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24 096
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Shop Cleaning Expense
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29 200
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Water Expense
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11 876
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Gas Expense
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12 517
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Fiat Delivery Van
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14 250
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Sales Returns & Allowances
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530
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Electricity Expense
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13 700
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Shop Furniture
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15 000
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Marco, Capital
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132 238
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Chef's Wages Expense
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20 730
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Office Cleaning Expense
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10 000
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Interest expense
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14 600
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Shop Staff Wages Expense
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24 545
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Discount Received
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1 290
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Unearned Sales
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4 335
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Pizza Oven
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9 150
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Marco, Drawings
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29 033
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Accounts Receivable
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3 325
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Loan
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177 943
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Inventory (1 July 2016)
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29 475
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Purchases
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126 500
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Rent Expense
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21 000
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Advertising Expense
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12 350
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Sales
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120 218
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Accounts Payable
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6 252
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Office Supplies
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1 175
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Refrigeration Equipment
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32 000
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Discount Allowed
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650
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Cooking Oil Disposal Expense
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6 342
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Repairs and Maintenance Payable
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5 375
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Accumulated Depreciation - Refrigeration Equipment
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16 313
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Insurance Expense
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1 920
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Totals
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463 964
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463 964
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Marco has emailed you the following list of account information related to the year ended 30 June 2017:
a) Chef's wages payable but not recorded as at 30 June are $1 430.
b) The Office Supplies on hand at 30 June 2017 was $421.
c) Rent was paid on 1 July 2016 for an 18 month period ending 31 December 2017.
d) The pizza oven was purchased on 1 March 2017 and will be depreciated at 20% per annum and will have no residual value (calculate and record the depreciation expense).
e) The bank has approved an overdraft facility for $3 000 for Arancina Pizza & Pasta Cantina.
f) The Refrigeration Equipment is expected to have a useful life of five years and have a $2 000 scrap value (calculate and record the depreciation expense for the year).
g) The 6 month Insurance policy (policy # 32 4558) of $1 920 was paid on 1 May 2017.
h) The Fiat Delivery Van was purchased on 1 November 2016 and is expected to have a useful life of four years and have a residual value of $250 (calculate and record the depreciation expense for the year - round up to the nearest dollar value).
i) On 30 June, Marco estimated 8% of Accounts Receivable will not be collected as this amount has been outstanding for 180 days.
j) $1 975 of the Unearned Sales were earned for catering at the Richmond Bocce club Annual General Meeting on 18 June 2017.
If your calculation results in an answer with decimal places please round to the nearest dollar i.e. 1.5 will become 2, 1.4 will become 1.
REQUIRED: It is now the end of the financial year and Marco requires you to undertake the following: Prepare the Balance Day Adjustment Journals for Arancina Pizza & Pasta Cantina where required. Include narration (explanation) for each journal entry.
QUESTION 2: Financial Statement
Mr Aspen owns and manages a plant nursery called "Totally Trees" specialising in the retail of trees to the public. The following Trial Balance for Totally Trees has been prepared at year end by Mr Aspen.
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TOTALLY TREES - TRIAL BALANCE AS AT 30 JUNE 2017
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Debit ($)
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Credit ($)
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Accrued Accounting Wages
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3 200
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Cash at Bank
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58 000
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Depreciation Expense - Van
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5 000
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Accounts Receivable
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76 000
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Gardening Equipment
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62 000
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Sales
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318 970
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Nursery Rent Expense
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24 000
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Delivery Van
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35 000
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Freight Inwards
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19 000
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Unearned Revenue
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3 100
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Discounts Received
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6 600
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Accrued Van Maintenance Expense
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1 900
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Mr Aspen, Capital (1 July 2016)
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346 150
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Inventory (1 July 2016)
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116 000
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Term Deposit
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130 000
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Mr Aspen, Drawings
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8 300
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Allowance for Doubtful Debts
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3 040
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Prepaid Rent
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2 000
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Depreciation Expense - Garden Equipment
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6 000
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Van Maintenance Expense
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10 000
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Doubtful Debts Expense
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3 040
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Purchases
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156 900
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Accounting Wages
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8 000
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Freight Outwards
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9 400
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Accumulated Depreciation - Gardening Equipment
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24 000
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Advertising Expense
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7 000
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Accumulated Depreciation - Van
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17 500
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Discount Allowed
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900
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Sales Returns and Allowances
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12 370
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Accounts Payable
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63 000
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Wages Sales Staff
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62 000
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Mortgage
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20 000
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Purchases Returns and Allowances
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3 450
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Total
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810 910
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810 910
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Additional Information:
- $5,000 of the term deposit is due to mature on 31 December 2017, the remaining amount of the term deposit will mature progressively after 1 July 2018.
- The inventory stocktake at 30 June 2017 was $128 600.
- $5 000 of the mortgage will be paid within the next financial year, the remaining amount of the mortgage will be paid progressively after 1 July 2018.
- The Unearned Revenue will be earned in the financial quarter ending 30 September 2017.
- Profit for the year ended 30 June 2017 is $18 010.
REQUIRED: Prepare a fully classified Balance Sheet in a narrative format and a Statement of Changes in Equity using the Trial Balance prepared by Mr Aspen above and the additional information provided.
QUESTION 3: Accounting Concepts
As a graduate accountant of Collins Chartered Accountants, you are frequently required to assist in stock takes for various clients. One of the very new clients to Collins Chartered Accountants is Mr Gruber who owns and operates quite a large bookshop and is considering opening another bookshop. He has been chatting to other bookshop owners and they have asked him whether he uses a periodic or perpetual inventory system. Mr Gruber does not know anything about either of these inventory systems and during a recent meeting he had with the Managing Partner of Collins Chartered Accountants (your boss) he asked if he could be sent some information regarding these two inventory systems. The Managing Partner is extremely busy so she has asked you to prepare a letter which covers the following:
REQUIRED: Please write a letter in your own words to the Managing Partner of your accounting firm explaining the following:
- Identify the two inventory systems.
- How Mr Gruber can determine which inventory system he is using in his bookshop.
- Identify which system provides more inventory information and control and explain why.
- Which inventory system would be most appropriate for Mr Gruber's bookshop and why.
Up to an additional 3 marks will be awarded for following the formatting requirements below.
Formatting hints:
- Date your letter 28th October 2017
- Address your letter to Natasha Collins (Managing Partner), Collins Chartered Accountants and Co. 64 Adelaide Terrace, Adelaide, SA, 5000
- Any formal letter format is acceptable
- Consider an appropriate way to sign off your letter
- Set out your letter with subheadings to separate each part of your letter as you address the criteria required
QUESTION 4: Cash Flow Statement
You are provided with the following financial information for Lime & Lemon Children's Toys Ltd:
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LIME & LEMON CHILDREN'S TOYS COMPARATIVE BALANCE SHEETS AS AT DECEMBER 31
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Current Assets
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2017
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2016
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Cash on Hand
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$1 200
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$4 000
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Cash at Bank
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3 957
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1 009
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Accounts Receivable (net)
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12 742
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4 500
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Inventory
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28 000
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18 000
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Prepaid Expenses
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1 650
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$47 549
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650
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$28 159
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Non Current Assets
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Plant & Equipment
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83 500
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64 000
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less Acc. Depreciation
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(23 000)
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60 500
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(17 600)
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46 400
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Land
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80 000
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180 000
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Total Assets
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188 049
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254 559
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Current Liabilities
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Bank Overdraft
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6 402
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-
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Accounts Payable
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3 325
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2 800
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Expenses Payable
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780
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790
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Tax Payable
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1 544
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12 051
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1 200
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4 790
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Non Current Liabilities
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Bank Loan
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20 000
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20 000
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Total Liabilities
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32 051
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24 790
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Net Assets
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$155 998
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$229 769
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Equity
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Capital
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155 998
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229 769
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$155 998
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$229 769
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LIME & LEMON CHILDREN'S TOYS LTD INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31 2017
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Net Sales
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$122 742
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Cost of Sales
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45 200
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Discount Received
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280
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Gross Profit:
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77 822
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Other Revenue:
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Interest Revenue
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40
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40
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77 862
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Expenses:
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Selling & Admin Expense
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20 068
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Doubtful Debts Expense
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354
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Depreciation Expense
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5 400
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Interest Expense
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3 800
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29 622
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Profit before tax
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48 240
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Income tax expense
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4 032
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Profit
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$44 208
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ANSWER THIS QUESTION ON THE PRO FORMA PROVIDED
REQUIRED: Prepare a Statement of Cash Flows in the pro forma provided below and show all calculations (an answer without supporting calculations will receive zero).
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LIME & LEMON CHILDREN'S TOYS LTD Cash Flow Statement for the year ended 31 December 2017
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$
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$
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Cash Flows from Operating Activities
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Receipts from customers
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Payments to Suppliers & Employees
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Cash generated from operations
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Interest Paid
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Income Tax Paid
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Interest Received
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Cashflows from Operating Activities
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Cashflows from Investing Activities
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Dividends Received
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Purchase of Equipment
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Proceeds from Sale of Land
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Cashflows from Investing Activities
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Cashflows from Financing Activities
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Drawings
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Net Increase (decrease) in cash held
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Cash at start
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Cash at end
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