1 (Max. Marks: 25)
Kalman, trading as Kalman Stores, submits to you draft accounts for the year ending 31 December 2016 and a balance sheet at that date. He explains that towards the end of the financial year his accountant resigned and he had ‘finished off the books himself. He thinks that errors have occurred and asks for your help. An examination of the books reveals the following:
- Rent due by T. Smith for Dec 2016, amounting to $560 is not included in the accounts.
- A payment of $2,300 for a new computer has been debited to the sundry expense Payment was made 31 December 2016.
- Commission due to sales staff for the month of December, $1200, has been overlooked.
- Repairs to Kalman’s private motor car, $730, have been debited to motor vehicle expense account.
- A payment of $45,000 on 1 January 2016 for additions to buildings has been debited to repairs & maintenance expense.
- Allowance for doubtful debts is shown at $540 dr. Total debtors at 31 December were $85,400. The provision is to be increased to 10% of debtors.
- A fire insurance policy covering buildings was taken out on 30 September, the annual premium of $1,080 being paid in advance on this date, and is included in full in the The $1,080 was debited to insurance expense.
- Interest of $210 on Wellington City Council Debentures was due, but has not been
- No depreciation charges have been made for the year ending 31 December 2016.
The draft balance sheet shows:
|Buildings (at cost)||$920,000|
|Less accumulated depreciation||(85,000)||835,000|
|Office furniture & Equipment (at cost)||115,000|
|Less accumulated depreciation||(63,000)||52,000|
Depreciation expense is to be made as follows:
Buildings, 2 per cent per annum on cost
Office furniture & equipment, 20 per cent per annum on their carrying amount.
- Show the journal entries required to make the necessary adjustments in the books. Marks =15
- Prepare a statement showing the effect of the adjustments on the net profit figure of $8,410 as shown in the draft accounts.
Marks = 10
Q.2 (Max Marks: 20)
Dissert Inc. extends credit to some customers and manages its own receivables. For the past five years, the average sales & costs have been as follows:
|Cost of Sales||273,000|
|Bad Debt Expense||5,600|
The financial controller for Dissert Inc. is considering whether to accept credit cards (visa & master cards only) from credit customers as some of these customers are slow to pay. Accepting credit cards is expected to increase the sales by 10%. Visa & master cards charge 1.93% of sales as fees. If Dissert Inc. switch to credit cards, it will no longer have bad debt expense & will also be able to save a further $6,000 on other expenses. After switch over to credit cards, the financial controller expects cash sales of $198,000.
- Should Dissert Inc. switch to accepting credit cards? Why or why not? Marks: 2.5
- Show the calculations for the net profit under the current arrangement & under the credit card arrangement? Marks: 7.5
- Prepare journal entries for Sales revenue, cash receipts, credit card receipts, cost of sales & other expenses under the credit card arrangement. Marks: 10
Note: Ignore GST. Dissert Inc. uses perpetual inventory system. Please show your calculations clearly.
Click on Buy Solution and make payment. All prices shown above are in USD. Payment supported in all currencies. Price shown above includes the solution of all questions mentioned on this page. Please note that our prices are fixed (do not bargain).
After making payment, solution is available instantly.Solution is available either in Word or Excel format unless otherwise specified.
If your question is slightly different from the above question, please contact us at email@example.com with your version of question.