QUESTION 1: Balance Day Adiustments
Anne Chovi is the sole proprietor of Scooba Dive Inc located in a popular beachside location referred to as The Cove. Anne has been successfully operating her environmentally friendly Scuba Diving gear business for the last ten years. The business primarily stocks goggles and facemasks, wetsuits, scuba tanks and other assorted diving gear. Anne also runs diving courses to promote the beauty of the reef and the continued need to look after the marine environment. Anne is so busy with the management of the business and running the diving courses that she was unable to attend to the bookkeeping, so she hired Jones & Co Accounting Specialists Pty Ltd to take over the accounting function. You are the graduate accountant working at Jones & Co Accounting Specialists Pty Ltd and are now responsible for preparing the year-end Balance Day Adjustment journals for Scooba Dive Inc.
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Scooba Dive Inc. |
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| Debit ($) | Credit ($) | |
| Cash | 4,800 | |
| Accounts Receivable | 28,800 | |
| Inventory (1 July 2019) | 34,400 | |
| Prepaid Rent | 1,440 | |
| Scuba tanks | 12,800 | |
| Accumulated Depreciation – Scuba tanks | 2,580 | |
| Office & Shop Equipment | 3,200 | |
| Accumulated Depreciation – Office and Shop Equipment | 1,580 | |
| Accounts Payable | 25,800 | |
| A Chovi, Capital (1 July 2019) | 46,400 | |
| A Chovi, Drawings | 10,000 | |
| Sales | 166,240 | |
| Sales Returns & Allowances | 1,800 | |
| Discount Allowed | 320 | |
| Purchases | 112,160 | |
| Interest Revenue | 720 | |
| Electricity Expense | 1,720 | |
| Water Expense | 960 | |
| Sales Staff Wages | 16,000 | |
| Local Government Rates Expense | 640 | |
| Insurance Expense | 4,800 | |
| Advertising Expense | 3,000 | |
| Rent Expense | 6,480 | |
| Totals | 243,320 | 243,320 |
On the following page is additional information that Anne has provided to you in relation to the year ended 30 June 2020.
- A physical stocktake of inventory at 30th June 2020 revealed $44,320 on hand.
- $5,200 of the recorded sales represents receipts for scuba tanks which will not be delivered until 7th July
- The prepaid rent was paid on 1 June 2020 and was Shop/Office rent for two months ending 31 July 2020.
- Upon receipt of the business’s bank statement, Anne realised that the business bank account had earned $12 interest on 30 June 2020 which had been directly paid into the bank account by the bank on that day. The accounting records need to be updated for this transaction.
- It is estimated that 2% of the 30 June 2020 balance of Accounts Receivable is unlikely to be received.
- Anne had relied on word of mouth to promote her business to date however Anne decided to advertise her business and products in a popular lifestyle magazine. Anne paid $3,000 at the end of February for the advertising campaign to commence on the 1″ of March 2020 for a six-month period.
- Sales staff wages owing but not paid as at balance day equal $1,334.
- Both the Scuba tanks and Office & Shop Equipment are expected to be used evenly over their useful lives. The expected total useful lives and residual values of both assets are as follows:
| Useful life | Residual Value | |
| Scuba tanks | 10 years | |
| Office & Shop Equipment | 2 years | S40 |
REQUIRED:
It is now the end of the financial year, and based on the information she has provided above, Kat has asked you to prepare any necessary balance day adjusting journals.
Use the General Journal document provided on the following page to record any journal entries required All journals must be correctly formatted and include a narration (explanation) for each entry.
| Date | Details | Debit ($) | Credit ($) |
QUESTION 2: Financial Statement
Mr Dinkley owns ‘A Page A Day’, a well-known and well-stocked bookshop specialising in mystery novels and comic books. He is also a very good friend of Anne Chovi and often refers customers who are holidaying in the Cove to Anne’s diving tours. The following Trial Balance for A Page A Day bookshop has been prepared at year end by Mr Dinkley, who likes to keep a hand in the bookkeeping side of the business.
A PAGE A DAY
TRIAL BALANCE
AS AT 30 JUNE 2020
| Debit ($) | Credit ($) | |
| Cash at Bank | 15,121 | |
| Accrued Rent | 400 | |
| Allowance for Doubtful Debts | 204 | |
| Shop Shelving | 22,456 | |
| Office Operating Expense | 17,200 | |
| Interest Expense | 1,065 | |
| Depreciation Exp — Motor vehicle | 400 | |
| Inventory (1 July 2019) | 10,480 | |
| Prepaid Insurance | 1,518 | |
| Freight Inwards Expense | 755 | |
| Accumulated Depreciation – Shop Shelving | 5,800 | |
| Discount Received | 400 | |
| Rent Expense | 17,800 | |
| Office Furniture and Fittings | 6,400 | |
| Delivery Expense | 360 | |
| Accounts Receivable | 16,341 | |
| Insurance Expense – Office | 240 | |
| Wages Expense | 52,600 | |
| Accumulated Depreciation – Motor vehicle | 400 | |
| Motor Vehicle | 8,000 | |
| Accounts Payable | 3,620 | |
| Doubtful Debts Expense | 204 | |
| Loan (repayable 1 Oct 2027) | 9,200 | |
| Sales | 154,581 | |
| Accumulated Depreciation – Office Furniture & Fittings | 1,900 | |
| Mr Dinkley, Capital (1 July 2019) | 43,910 | |
| Depreciation Exp— Office Furniture & Fittings | 640 | |
| Mr Dinkley, Drawings | 7,200 | |
| Advertising Expense | 1,815 | |
| Sales Returns & Allowances | 190 | |
| Depreciation Exp —Shop Shelving | 1,000 | |
| Discount Allowed | 230 | |
| Purchases | 38,400 | |
| Totals | 220,415 | 220,415 |
Mr Dinklev has provided the following additional information to assist you with your statement preparation:
- The stock–take performed at 30 June 2020 recorded an ending inventory balance of $11,000.
- The Wages account balance is comprised of $28,930 for Selling & Distribution and $23,670 for Administration.
- The Rent expense is split 50% for the office premises and 50% for the shop premises.
REQUIRED:
Using the template provided on the following page, prepare a fully classified Income Statement for the year ending 30 June 2020.
| INCOME | |||
| Less: EXPENSES | |||
| PROFIT | |||
QUESTION 3: Cash Flow Statement
Mr Bixby is also a good friend of Anne Chovi’s. Mr Bixby owns ‘Fly your Kite’, a small shop that specialises in making and selling Kites mostly to holiday makers who visit the area but also sells quite a few kites online. Mr Bixby enjoys bookkeeping and does most of the business bookkeeping himself except for Cashflow Statements which he finds quite difficult to do. Anne Chovi has been pleased with the work you have done for her, so she suggested that Mr Bixby ask Jones & Co Accounting Specialists Pty Ltd to prepare the Cashflow Statement for him. You are the graduate accountant working at Jones & Co Accounting Specialists Pty Ltd and are now responsible for preparing the Cashflow Statement for ‘Fly your Kite’.
You are provided with the following financial information for ‘Fly Your Kite’:
FLY YOUR KITE
COMPARATIVE BALANCE SHEETS
AS AT 30 JUNE
| Current Assets | 2020 | 2019 | ||
| Cash on Hand | $1 200 | $4 000 | ||
| Cash at Bank | 13 623 | 1 009 | ||
| Accounts Receivable (net) | 19 200 | 4 500 | ||
| Inventory | 28 000 | 18 000 | ||
| Prepaid Expenses | 1 650 | $63 673 | 650 | $28 159 |
| Non-Current Assets | ||||
| Plant & Equipment | 83 500 | 64 000 | ||
| less Acc. Depreciation | (23 000) | 60 500 | (17 600) | 46 400 |
| Land | 80 000 | 180 000 | ||
| Total Assets | 204 173 | 254 559 | ||
| Current Liabilities | ||||
| Bank Overdraft | 6 402 | |||
| Accounts Payable | 3 544 | 2 800 | ||
| Expenses Payable | 780 | 790 | ||
| Tax Payable | 5 477 | 16 203 | 1 200 | 4 790 |
| Non-Current Liabilities | ||||
| Bank Loan | 20 000 | 20 000 | ||
| Total Liabilities | 36 203 | 24 790 | ||
| Net Assets | $157 970 | $229 759 | ||
| Equity | ||||
| Capital | 167 970 | 229 769 | ||
| $157 974 | $229 759 |
FLY YOUR KITE
INCOME STATEMENT
FOR THE YEAR ENDED 30 JUNE 2020
| Net Sales | $145 000 | |
| Cost of Sales | 45 200 | |
| Discount Received | 280 | |
| Gross Profit: | 100 080 | |
| Other Revenue: | ||
| Interest Revenue | 52 | 52 |
| 100 132 | ||
| Expenses: | ||
| Selling & Admin Expense | 23 345 | |
| Doubtful Debts Expense | 354 | |
| Depreciation Expense | 5 400 | |
| Interest Expense | 3 800 | 32 899 |
| Profit before tax | 67 233 | |
| Income tax expense | 7 965 | |
| Profit | $59 268 |
Additional information
• The Land was sold for $100,000 cash
ANSWER THIS QUESTION ON THE PRO FORMA PROVIDED
REQUIRED:
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).
FLY YOUR KITE
CASH FLOW STATEMENT
FOR THE YEAR ENDED 30 JUNE 2020
| $ | $ | |
| Cash Flows from Operating Activities | ||
| Receipts from customers | ||
| Payments to suppliers & employees | ||
| Cash generated by operations | ||
| Interest paid | ||
| Income tax paid | ||
| Interest received | ||
| Cash Flows from Investing Activities | ||
| Purchase of Equipment | ||
| Proceeds from sale of land | ||
| Cash Flows from Financing Activities | ||
| Dividends | ||
| Net increase / decrease in cash held | ||
| Cash at the beginning of the year | ||
| Cash at the end of the year |
ALL WORKINGS MUST BE PROVIDED, OR THE CASH FLOW STATEMENT WILL RECEIVE NO MARKS
(Insert any additional pages as required)
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