Question 1

Which of the following events listed below results in an accounting transaction for Clothing Ltd?  State a reason if it is not an accounting transaction.

 

  1. Clothing Ltd signed a contract to hire a new store manager for a salary of $150,000 per annum. The manager will start work next month.
  2. The founder of Clothing Ltd., who is also a major shareholder, purchased additional stock in another company.
  3. Clothing Ltd borrowed $230,000 from a local bank.
  4. Clothing Ltd purchased a sewing machine, which it paid for by signing a note payable.
  5. Clothing Ltd issued 10,000 shares to a private investor, who is also a car business owner, in return for a new delivery truck.
  6. Two investors in Clothing Ltd sold their stock to another investor.
  7. Clothing Ltd ordered some fabric to be delivered next week.
  8. Clothing Ltd lent $250,000 to a member of the board of directors.

 

Question 2

The financial year end for Riverwood Ltd is 30 June.

  1. Prepaid insurance as at 1 July 2015 was $4,000. This represents the cost of one year’s insurance policy that expires on 30 June 2016.
  2. Commissions to sales personnel for the five day working week ending 2 July 2016, totaling $9,600, will be paid on 2 July.
  3. Sales revenue for the year included $570 of customer deposits for products that have not yet been shipped to them.
  4. A total of $900 worth of stationery was charged to the office supplies expense during the year. On 30 June about $490 worth of stationery is still considered useful for next year.
  5. The company has a bank loan and pays interest annually (in arrears) on 31 December. The estimated total interest cost for the calendar year ended 31 December 2016 is $500.

Required: 

  • Show the effect of each of the situations above (a. – e.) on the accounting equation on 30 June 2016.
  • Provide the adjusting journal entry for each of the situations above (a. – e.) on 30 June 2016.

 

Question 3

SRP Ltd has the following unadjusted trial balance as at 31 Dec 2015.

Account Titles Debit ($) Credit ($)
Cash 19,600  
Accounts Receivable 7,000  
Supplies 1,300  
Prepaid Insurance 900  
Equipment 27,000  
Accumulated Depreciation   12,000
Other Assets 5,100  
Accounts Payable   7,500
Share Capital (3000 shares outstanding all year)   16,000
Retained Profit   10,300
Service Revenue   48,000
COGS 32,900  
Total 93,800 93,800

 

Note: Data not yet recorded as at 31 Dec 2015 includes the following five (5) transactions:

  1. Depreciation expense for 2015 was $3,000.
  2. Insurance expired during 2015 was $450.
  3. Wages earned by employees but not yet paid on 31 December 2015 was $2,100.
  4. The supplies count on 31 December 2015 reflected $800 remaining supplies on hand to be used in 2016.
  5. Income tax expense was $3,150.

 

Required:

  1. Record the 2015 adjusting entries.
  2. Prepare an income statement and a classified balance sheet for 2015 to include the effect of the five (5) transactions listed above.
  3. Prepare closing entries.
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