QUESTION 1: Balance Day Adjustments

Below is the unadjusted Trial Balance as at 30 June 2018 for “Feed Me Seymour”, a retail plant nursery and garden centre. It is owned and operated by Fran Giapani.

 

Feed Me Seymour
Unadjusted Trial Balance
As at 30 June 2018
Debit ($) Credit ($)
Cash at Bank 35,760
Accounts Receivable 42,500
Inventory 187,200
Prepaid Insurance 6,480
Office Supplies on hand 4,368
Nursery Equipment 53,040
Accumulated Depreciation — Nursery Equipment 15,912
Delivery Van 62,400
Accumulated Depreciation — Delivery Van 24,960
Accounts Payable 36,036
Loan Payable 156,000
F. Giapani — Capital (1 July 2017) 88,296
F. Giapani — Drawings 37,440
Sales Revenue 921,372
Sales Returns and Allowances 13,232
Cost of Sales 549,744
Discount received 17,276
Freight inwards 12,480
Sales Salary Expense 91,104
Delivery Expense 24,336
Advertising Expense 35,260
Administration Expense 620
Rent Expense 38,064
Office Salaries Expense 45,000
Electricity Expense 11,776
Discount Allowed 9,048
Totals 1,259,852 1,259,852

 

On the following page is information that Fran has provided to you in relation to the year ended 30 June 2018.

 

  1. Sales Salaries which are payable but not recorded as at 30 June are $4,260.
  2. Both the Nursery Equipment and the Delivery Van are expected to be used evenly over their useful lives. The expected total useful lives and residual values of both assets is as follows:

 

Estimated Useful life Estimated Residual
Nursery Equipment 7 years $4,040
Delivery Van 4 years $12,400

 

  1. In February 2018, Fran purchased two tickets to see “Little Shop of Horrors” (her favourite musical!). The tickets cost $175 each and she purchased them online using the business bank account. Fran recorded this transaction as a debit to Administration Expense and a credit to Cash at Bank.
  2. A count of the stationery cupboard revealed that office supplies on hand at 30 June 2018 were $575.
  3. The Prepaid Insurance account represents a 12-month insurance policy that commenced on 1 November 2017.
  4. In May 2018 a customer ordered the very rare “Audrey 2” carnivorous plant, which had to be imported from South America. Unfortunately, due to delays in obtaining the necessary customs clearances, this plant will not arrive in Australia until late September 2018. The customer paid $35,800 at the time they ordered the plant, and Fran recorded this as Sales revenue.
  5. As of 30 June 2018, Fran has estimated that 396 of customers who owe her money will be unable to
  6. The last time Fran received an electricity bill for the business was on 31 May 2018. She estimates that the power usage from then until 30 June 2018 was $1,080.

REQUIRED:

It is now the end of the financial year, and based on the information she has provided above, Fran has asked you to prepare any necessary balance day adjusting journals.

Use the General Journal document provided to record the correctly formatted journal entries required and include a narration (explanation) for each entry.

 

QUESTION 2: Financial Statement

The following adjusted Trial Balance for Otto’s Fine Furniture has been prepared at year end by the business owner Otto Mann.

REQUIRED:

Using the adjusted Trial Balance provided below, prepare the following for the period in question:

  1. Statement of Changes in Equity
  2. Fully classified Balance Sheet (in the narrative format)

 

OTTO’S FINE FURNITURE
ADJUSTED TRIAL BALANCE
AS AT 30 JUNE 2018

Debit ($) Credit ($)
Cash at Bank 101200
Accounts Receivable 107800
Inventory (30 June 2018) 46112
Allowance for Doubtful Debts 2200
Prepaid Advertising 3388
Shop Furniture & Fittings 55000
Accumulated Depreciation — Shop Furniture & Fittings 19844
Sales Equipment 31680
Accumulated Depreciation —Sales Equipment 11440
Advertising Payable 9900
Accounts Payable 35200
Interest Payable 1320
Loan Payable 73920
Capital, 0. Mann (1 July 2017) 98582
Drawings, 0. Mann 40700
Sales 1204082
Sales Returns & Allowances 18986
Discount Received 6820
Electricity Expense 3520
COS 849662
Depreciation Expense—Shop Furniture & Fittings 7810
Depreciation Expense — Sales Equipment 11440
Freight Inwards 6204
Rent Expense 64460
Discount Allowed 8140
Salaries Expense – Store 73480
Advertising Expense 1232
Interest Expense 1034
Doubtful Debts Expense 2200
Salaries Expense – Admin 29260
Totals 1463308 1463308

 

Otto has provided the following addition information to assist in your statement preparation:

  • Otto has determined that his profit for the year ending 30 June 2018 was $133 474.
  • $18 480 of the Loan Payable is due to be paid by the end of the next financial year (30 June 2019). The remainder of this loan will be payable after this date.

 

QUESTION 3: Cash Flow Statement

You are provided with the following financial information for Fire It Up Pty Ltd, a BBQ and outdoor entertaining retailer:

FIRE IT UP PTY LTD
COMPARATIVE BALANCE SHEETS
AS AT 30 JUNE

Current Assets 2018 2017
Cash on Hand 71 500 15 600
Cash at Bank 139 100 59 800
Accounts Receivable (net) 75 400 63 700
Inventory 403 000 429 000
Prepaid Expenses 45 500 734 500 42 900 611 000
Non-Current Assets
Store Fittings 1 287 000 988 000
less Acc. Depreciation 1592 800) 694 200 (530 400) 457 600
Land 169 000 299 000
Total Assets 1 597 700 1 367 600
Current Liabilities
Bank Overdraft 26 000
Accounts Payable 83 200 97 500
Expenses Payable 27 300 40 300
Tax Payable 54 600 191 100 72 800 210 600
Non-Current Liabilities
Loan 169 000
Total Liabilities 360 100 210 600
Net Assets $1 237 600 $1 157 000
Shareholders’ Equity
Share Capital 598 000 546 000
Retained Earnings 639 600 611 000
$1 237 600 $1 157 000

 

FIRE IT UP PTY LTD
INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2018

Net Sales 2587000
Cost of Sales 1690000
Less: Discount Received 6500 1683500
Gross Profit: 903500
Other Revenue:
Gain on sale of building 78000
Interest Revenue 7800 85800
989300
Expenses:
Selling & Admin Expenses 565500
Doubtful Debts Expense 11700
Interest Expense 15600 592800
Profit before tax 396500
Income tax expense 122850
Profit 273650

 

Additional Information

  • Proceeds from the sale of land was $208,000. The land had originally cost $130,000 and the sale made the company a profit (gain) of $78,000.
  • The Selling & Admin Expenses include Depreciation expense of $62,400.
  • During the year, 104,000 shares were issued at 0.50c per share

 

REQUIRED:

  1. Prepare a Statement of Cash Flows in the pro forma provided on the following page. You must show all calculations (answers without supporting calculations will receive zero marks)
  2. The owner of Fire It Up (Paddy O’Heater) thinks you have done a terrible job and cannot understand why his reported profit was so much higher than his increase in cash. Explain to Paddy at least two factors that may be causing this apparent discrepancy.
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