ACCT5001 S1 2010

Self-Study Solutions

Week 5

ACCT5001 S1 2010

Self-Study Solutions

Week 5

Ch. 4: Q5, Q6; E4.1; E4.5; E4.9; PSA4.3; PSA4.4; PSA4.6*

EXERCISE 4.1 Sailing Boats Ltd (a) (1) 7 Dec Accounts Receivable Sales
(to record sale on credit)

Review PSA2.5*; PSA3.7*

720,000 720,000

5.

(a)

The primary source documents are: (1) (2) cash sales cash register tapes, and credit sales sales invoices.

Cost of Goods Sold (b) The entries for the perpetual method of accounting for inventories are: Debit Cash sales Cash Sales Cost of Goods Sold Inventory Credit sales Accounts Receivable Sales Cost of Goods Sold Inventory xx xx xx xx xx xx xx xx (3) 13 Dec Cash ($690,000 - $13,800) Discount Allowed [($720,000 - $30,000) x 2%] Accounts Receivable ($720,000 - $30,000)
(to record collection within 2/7, n/30 discount period from Ships Ahoy Ltd)

480,000 480,000

Inventory
(to record cost of inventory sold to Ships Ahoy Ltd)

Credit (2) 8 Dec Sales Returns and Allowances Accounts Receivable

(to record allowance granted to Ships Ahoy Ltd)

30,000 30,000

676,200 13,800 690,000

6. 24 July Accounts Payable ($4,480 - 280) Discount Received ($4,200 x 2%) Cash ($4,200- $84)
(to record payment of balance, 2/7)

(b) 4,200 84 4,116

2 Jan

Cash Accounts Receivable ($720,000 - $30,000)

(to record receipt of payment by Ships Ahoy Ltd)

690,000 690,000

(c)

The advantages associated with granting a discount for early payment are that the purchaser saves money and the seller is able to shorten the operating cycle thereby improving cash flow by converting accounts receivable to cash earlier. The disadvantage to the seller is that there is a cost associated with offering a discount.

ACCT5001 S1 2010

Self-Study Solutions

Week 5

ACCT5001 S1 2010

Self-Study Solutions

Week 5

EXERCISE 4.5 Hans Olaf Pty Ltd EXERCISE 4.9 (a) Music Box Ltd (a) (1) 5 April Inventory Accounts Payable
(to record purchase of inventory from R. Ward & Co, terms 2/7, 30/n)

18,000 18,000 Income Statement for the year ended 30 June 2010

(2)

6 April

Freight In Cash
(to record payment of freight on goods purchased)

900 900 OPERATING REVENUE Net sales revenue: Less: Cost of goods sold $2,820,000 (1,186,800) 26,000 GROSS PROFIT $1,633,200

(3)

7 April

Equipment Accounts Payable

(to record purchase of equipment on account)

26,000

Other operating revenue (4) 8 April Accounts Payable Inventory

(to record return of incorrect inventories and granted allowance of $3,000)

54,000 1,687,200

3,000 3,000 OPERATING EXPENSES Selling expenses 828,000

(5)

11 April

Accounts Payable ($18,000 - $3,000) Discount Received [($18,000 - $3,000) x 2%] Cash ($15,000 - $300)
(to record payment to R. Ward & Co, including discount 2/7)

15,000

Administrative expenses

522,000

300

Financial expenses Total operating expenses

84,000 1,434,000

14,700 PROFIT BEFORE INCOME TAX Less: Income tax expense 253,200 (75,960) $177,240

(b)

4 May

Accounts Payable ($18,000 - $3,000) Cash

(to record payment to R. Ward & Co, 30/n)

15,000 15,000

PROFIT AFTER INCOME TAX

ACCT5001 S1 2010

Self-Study Solutions

Week 5

ACCT5001 S1 2010

Self-Study Solutions

Week 5

PROBLEM SET A 4.3 (b) The Power House General Journal Profit margin = Profit after tax Net sales

177,240 6.3% 2,820,000

June

Inventory (130 x $60) Accounts Payable

7,800 7,800

Gross profit rate =

Gross Profit Net Sales

1,633,200 57.9% 2,820,000

(to record purchase of power tools from Tool World, 1/7, 30/n)

Freight In

60 60

Operating expenses to sales ratio =

Operating Expenses Net Sales

1,434,000 50.9% 2,820,000

Cash
(to record payment of freight to Speedy Couriers)

Accounts Receivable (140 x $120) Sales

(to record sale of power tools to Hardware House)

16,800 16,800

Cost of Goods Sold (140 x $60) Inventory

(to record cost of inventory sold)

8,400 8,400

Accounts Payable Inventory

(to record return of inventory to Tool World)

600 600

Accounts Payable ($7,800 - $600) Discount Received ($7,200 x .01) Cash

(to record payment to Tool World, 1/7)

7,200 72 7,128

15

Cash Accounts Receivable

(to record payment received from Hardware House)

16,800 16,800

ACCT5001 S1 2010

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Week 5

ACCT5001 S1 2010
4U)

Self-Study Solutions

Week 5

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Accounts Receivable (120 x $120) Sales

(to record sale of power tools to Funnings Warehouse)

14,400 14,400 Inventory Cost of Goods Sold

(to record cost of goods returned)

900 900

Cost of Goods Sold (120 x $60) Inventory

(to record cost of inventory sold)

7,200 7,200

20

Inventory (120 x $60) Accounts Payable

(to record purchase of power tools from Electro Tool, 2/7, 30/n)

7,200 7,200

24

Cash Discount Allowed ($14,400 x .02) Accounts Receivable

(to record payment received by Funnings Warehouse, 2/7)

14,112 288 14,400

26

Accounts Payable Discount Received ($720 x .02) Cash

(to record payment to Electro Tool, 2/7)

7,200 144 7,056

28

Accounts Receivable (110 x $120) Sales

(to record sale of power tools to Power Tools 4U)

13,200 13,200

Cost of Goods Sold (110 x $60) Inventory

(to record cost of inventory sold)

6,600 6,600

30

Sales Returns and Allowances Accounts Receivable

(Allowances on power tools returned by Power Tools

1,800 1,800

ACCT5001 S1 2010 PROBLEM SET A 4.4

Self-Study Solutions

Week 5

ACCT5001 S1 2010

Self-Study Solutions

Week 5

Electricity expense Insurance expense

13,780 11,700 52,000 26,000 4,550 113,230

(a)
Dave Jonos Department Store Pty Ltd Income Statement for the year ended 30 June 2011
OPERATING REVENUE

Office salaries expense Rent expense office space Rates and taxes expense

Financial expenses: Interest expense Gross sales revenue Less: Sales returns and allowances Net sales revenue Less: Cost of goods sold $1,183,000 (13,000) $1,170,000 (823,186) $346,814
PROFIT BEFORE INCOME TAX

Sales revenue:

10,400

10,400 267,540

Total operating expenses

85,774 (25,740) 60,034

Less: Income tax expense

PROFIT AFTER INCOME TAX

GROSS PROFIT

Other operating revenue: Discount received Interest revenue 1,300 5,200 6,500 353,314
Dave Jonos Department Store Pty Ltd Statement of Changes in Equity for the year ended 30 June 2011

OPERATING EXPENSES

Retained Earnings, 1 July 2010 Depn expense store equipment Freight out Rent expense store space Sales commissions expense Sales salaries expense Add: Profit

$18,460 60,034

Selling expenses: 12,350 10,660 11,700 18,200 91,000 143,910 Retained Earnings, 30 June 2011 62,894

78,494 Less: Dividends (15,600)

Administrative expenses: Depn expense office equipment 5,200

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ACCT5001 S1 2010

Self-Study Solutions
Dave Jonos Department Store Pty Ltd Statement of Financial Position as at 30 June 2011

Week 5

ACCT5001 S1 2010

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Week 5

(b) Return on assets =

Profit after tax

ASSETS Current assets: Cash Accounts receivable Inventory Prepaid Insurance Total Current Assets $10,400 15,301 47,060 5,850 $78,611

=
Av total assets

60 ,034 27 . 1 % 221,644

Av total assets = (208,000 + 235,287) /2 = 221,644

Profit margin =

Profit after tax Net sales

60,034 5.1% 1,170,000

Non-Current Assets Property, plant and equipment Store equipment Less: Accum. depn store equipment 162,500 (54,340) 74,100 (25,584) 48,516 156,676 $235,287 108,160

Gross profit rate =

Gross Profit Net Sales

346,814 29.6% 1,170,000

Office equipment Less: Accum. Depn office equipment Total Non-Current Assets TOTAL ASSETS

Operating expenses to sales ratio =

Operating Expenses 267,540 22.9% Net Sales 1,170,000

(c)
LIABILITIES AND EQUITY Current Liabilities Accounts payable Income tax payable Rates and taxes payable Sales commissions payable Total Current Liabilities Non-Current Liabilities Bank loan Total Liabilities Equity Share capital Retained Earnings Total Equity TOTAL LIABILITIES AND EQUITY 39,000 62,894 101,894 $235,287 59,800 133,393 35,503 25,740 4,550 7,800 73,593

A fully classified income statement provides more information than a summary-type statement. For instance, readers of the statement can ascertain how many sales were returned, discounts allowed on sales, and discounts received on purchases. Useful ratios such as the gross profit ratio and operating expenses/sales can also be calculated. If the operating expense ratio is high, a further breakdown of expenses into categories can give insight as to which particular expenses were excessive.

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ACCT5001 S1 2010

Self-Study Solutions

Week 5

ACCT5001 S1 2010

Self-Study Solutions

Week 5

PROBLEM SET A 4.6 Seaview Pty Ltd Income Statement for the year ended 30 June 2011

Financial expenses: Discount allowed Interest expense Bank charges Total operating expenses 8,800 2,200 1,100 12,100 237,600

OPERATING REVENUE Sales revenue: Gross sales revenue

Less: Sales returns and allowances

PROFIT BEFORE INCOME TAX

Less: Income tax expense

135,300 (40,590) $94,710

$990,000 (33,000) $957,000 (610,500) $346,500

PROFIT AFTER INCOME TAX

Net sales revenue

Less: Cost of goods sold

GROSS PROFIT

Other operating revenue: Discount received Rent revenue Total operating revenue 17,600 8,800 26,400 372,900

OPERATING EXPENSES Selling expenses: Advertising Freight out 11,000 33,000

Sales commissions expense (6600 + 4400) 11,000 Sales salaries expense 88,000 143,000

Administrative expenses: Depn expense office equipment Office salaries expense 8,800 40,700

Rent expense office space (26400 6600)19,800 Electricity expense 13,200 82,500

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ACCT5001 S1 2010

Self-Study Solutions

Week 5

ACCT5001 S1 2010 (b)

Self-Study Solutions

Week 5

Review Questions: PSA2.5*; PSA3.1* PROBLEM SET A 2.5 Liu Advertising Pty Ltd (a) Date Account Titles and Explanation Post Ref Debit Credit

Cash 1/4 11/4 20/4 Share Capital Revenue Received in Advance Service Revenue 3,150 30/4 30/4 29,200 Accounts Payable Closing Balance 25,500 2/4 550 30/4 Rent Expense Salaries Expense

100 950 1,950 1,150 25,150 29,200

Apr.

Cash Share Capital (Issued shares for cash)

100 300

25,500 25,500
1/5 Opening Balance

25,150

1 2

No entry not a transaction. Rent Expense Cash (Paid monthly office rent) Supplies Accounts Payable (Purchased supplies on account from Speedy Art Supplies) Accounts Receivable Service Revenue (Invoiced clients for services rendered) Cash Revenue Received in Advance (Received cash advance for future service) 510 100 950 950
10/4 Service Revenue

Accounts Receivable 1,350

110

115 200

2,550 2,550
3/4 Accounts Payable

Supplies 2,550

115

10

110 400

1,350 1,350
30/4 30/4 Cash Closing Balance

Accounts Payable 1,150 3/4 1,400 2,250 Supplies

200 2,550 2,250

11

100 209

550 550

1/5

Opening Balance

1,400

20

Cash Service Revenue (Revenue received in cash)

100 400

3,150 3,150

Revenue Received in Advance 11/4 Cash

209 550

30

Salaries Expense Cash (Paid monthly salary)

500 100

1,950 1,950

Share Capital 1/4 Cash

300 25,500

30

Accounts Payable Cash (Paid Speedy Art Supplies on account)

200 100

1,150 1,150

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ACCT5001 S1 2010

Self-Study Solutions Service Revenue 10/4 20/4 Accounts Receivable Cash

Week 5 400 1,350 3,150 4,500

ACCT5001 S1 2010 PROBLEM SET A 3.7 (a) Date

Self-Study Solutions

Week 5

Corellian Windows Ltd General Journal Post Ref. 100 300 Debit Credit

Account Titles and Explanation

July 1
Salaries Expense 30/4 Cash 1,950 500

Cash Share Capital (Issued shares for cash)

13,500 13,500

Motor Vehicles Cash Accounts Payable (Purchased truck) Cleaning Supplies Accounts Payable (Purchased cleaning supplies) Prepaid Insurance Cash (Paid insurance) Accounts Receivable Service Revenue (Invoiced customers) Accounts Payable Cash (Paid accounts payable) Salaries Expense Cash (Paid salaries) Cash Accounts Receivable (Collected cash from customers on account)

171 100 200

9,000 4,500 4,500

Rent Expense 2/4 Cash 950

510

120 200

1,350 1,350

130 100

1,800 1,800

(c) Liu Advertising Pty Ltd Trial Balance as at 30 April 2010

12

110 400

3,750 3,750

18

200 100

2,250 2,250

REF 100 110 115 200 209 300 400 500 510 Cash Accounts Receivable Supplies Accounts Payable Revenue Received in Advance Share Capital Service Revenue Salaries Expense Rent Expense

Debit $ 25,150 1,350 2,550

Credit $

20

540 100

1,800 1,800

21
1,400 550 25,500 4,500

100 110

2,100 2,100

25

1,950 950 $31,950 $31,950

Accounts Receivable Service Revenue (Invoiced customers) Petrol & Oil Expense Cash (Paid for petrol and oil) Dividends Cash (Paid cash dividend)

110 400

3,000 3,000

31

500 100

300 300

31

315 100

900 900

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ACCT5001 S1 2010 (b), (e) & (h)

Self-Study Solutions

Week 5

ACCT5001 S1 2010

Self-Study Solutions Motor Vehicles

Week 5 171

1/7 Cash 1/7 21/7 Share Capital Accounts Receivable 13,500 1/7 2,100 5/7 18/7 20/7 31/7 31/7 31/7 15,600 1/8 Opening Balance 4,050 Motor Vehicles Prepaid Insurance Accounts Payable Salaries Expense Petrol & Oil Expense Dividends Closing Balance 100 4,500 1,800 2,250 1,800 300 900 4,050 15,600 18/7 31/7

Cash/Accounts Payable

9,000

Accumulated Depreciation Motor Vehicles 31/7 * (e) adjusting entry, nil balance before adjusting entry Depreciation Expense*

172 300

Accounts Payable Cash Closing Balance 2,250 1/7 3,600 3/7 5,850 1/8 Opening Balance Motor Vehicles Cleaning Supplies

200 4,500 1,350 5,850 3,600

Accounts Receivable 12/7 25/7 31/7 1/8 Service Revenue Service Revenue Service Revenue* Opening Balance 3,750 21/7 3,000 1,650 31/7 8,400 6,300 * (e) adjusting entry, balance was $4,650 dr before adjusting entry Closing Balance Cash

110 2,100 6,300 8,400

Salaries Payable 31/7 * (e) adjusting entry, nil balance before adjusting entry Share Capital 1/7 Cash Salaries Expense*

210 600

300 13,500

Retained Earnings Cleaning Supplies 3/7 Accounts Payable 1,350 31/7 31/7 1,350 1/8 Opening Balance 900 Dividends 31/7 Cash 900 31/7 Retained Earnings * (e) adjusting entry, balance was $1,350 dr before adjusting entry Cleaning Supplies Expense* Closing Balance 120 450 900 1,350 31/7 31/7 Dividends Closing Balance 900 31/7 3,900 4,800 1/8 Opening Balance Income Summary

310 4,800 4,800 3,900

315 900

Prepaid Insurance 5/7 Cash 1,800 31/7 31/7 1,800 1/8 Opening Balance 1,650 * (e) adjusting entry, balance was $1,800 dr before adjusting entry Insurance Expense* Closing Balance

130 150 1,650 1,800 31/7 31/7 Expenses Retained Earnings Income Summary 3,600 31/7 4,800 8,400 Entries to this account are closing entries. It has a nil balance before and after closing entries because the balance, profit, is closed to retained earnings, 8,400 Revenue 320 8,400

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ACCT5001 S1 2010

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Week 5 400 Accounts Receivable Accounts Receivable Accounts Receivable* 3,750 3,000 1,650 8,400

ACCT5001 S1 2010

Self-Study Solutions

Week 5

31/7

Income Summary

8,400 12/7 25/7 31/7 8,400

(c) & (f) Corellian Windows Ltd Trial Balance as at 31 July 2010

* (e) Adjusting entry,$6,750 cr balance before adjusting entry, $8,400 cr after adjustment, before closing

Petrol & Oil Expense 31/7 Cash 300 31/7 Income Summary

500 300 No. 100 110 120 130 171 172 200 210 520 Income Summary 300 300 310 400 500 530 Income Summary 150 510 520 530 540 540 Income Summary 2,400 2,400 Account Title Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Motor Vehicles Accumulated Depreciation M. Vehicles Accounts Payable Salaries Payable Share Capital Dividends Service Revenue Petrol & Oil Expense Cleaning Supplies Expense Depreciation Expense Insurance Expense Salaries Expense

(c) Unadjusted Debit $4,050 4,650 1,350 1,800 9,000 $3,600 13,500 900 6,750 300 Credit

(f) Adjusted Debit $4,050 6,300 900 1,650 9,000 $300 3,600 600 13,500 900 8,400 300 450 300 150 Credit

Cleaning Supplies Expense 31/7 Cleaning Supplies* 450 31/7 Income Summary

510 450

* (e) Adjusting entry, nil balance before adjusting entry, $450 dr after adjustment, before closing

Depreciation Expense 31/7 Accumulated Depreciation* 300 31/7

* (e) adjusting entry, nil balance before adjusting entry Insurance Expense 31/7 Prepaid Insurance* 150 31/7

* (e) Adjusting entry, nil balance before adjusting entry, $150 dr after adjustment, before closing Salaries Expense 20/7 31/7 Cash Salaries Payable* 1,800 31/7 600 2,400

1,800 $23,850 $23,850

2,400 $26,400 $26,400

* (e) adjusting entry $1800 dr balance before adjusting entry, $2400 dr after adjusting entry before closing

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ACCT5001 S1 2010 (d)

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Week 5

ACCT5001 S1 2010

Self-Study Solutions Corellian Windows Ltd

Week 5

General Journal Date Account Titles and Explanation Post Ref. 110 400 Debit Credit Retained earnings 1 July

Statement of changes in equity for the month ended 31 July 2010

1.

July 31

Accounts Receivable Service Revenue (Accrued revenue) Depreciation Expense Accumulated Depreciation (Depreciation expense) Insurance Expense Prepaid Insurance (Prepaid insurance expired) Cleaning Supplies Expense Cleaning Supplies (Supplies used) Salaries Expense Salaries Payable (Accrued salaries)

1,650 1,650

$4,800 4,800 (900) $3,900

Add: Less:

Profit Dividends

2.

31

520 172

300 300

Retained earnings 31 July

3.

31

530 130

150 150
Corellian Windows Ltd Statement of Financial Position

4.

31

510 120

450 450
Current assets:

as at 31 July 2010 $ $

5.

31

540 210

600 600

Cash Accounts receivable Cleaning supplies Prepaid insurance Total current assets

4,050 6,300 900 1,650 12,900 9,000 (300) 8,700 $21,600

(g) Corellian Windows Ltd Income Statement for the month ended 31 July 2010 $ Revenues: Service revenue Expenses: Salaries expense Cleaning supplies expense Depreciation expense Petrol & Oil expense Insurance expense Total expenses Profit 2,400 450 300 300 150 3,600 $4,800 8,400 $

Non-current assets: Motor Vehicles Less: Total Assets Liabilities and Equity: Current liabilities: Accounts payable Salaries payable Total current liabilities Equity: Share capital Retained earnings Total Equity Total Liabilities and Equity 13,500 3,900 17,400 $21,600 3,600 600 4,200 Accumulated depreciation Total non-current assets

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ACCT5001 S1 2010 (h)

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Week 5

General Journal Date Account Titles and Explanation Post Ref 400 320 Debit Credit

July 31

Service Revenue Income Summary (Close revenue accounts) Income Summary Petrol & Oil Expense Cleaning Supplies Expense Depreciation Expense Insurance Expense Salaries Expense (Close expense accounts) Income Summary Retained Earnings (Close Income summary account) Retained Earnings Dividends (Close dividends account)

8,400 8,400

31

320 500 510 520 530 540

3,600 300 450 300 150 2,400

31

320 310

4,800 4,800

31

310 315

900 900

(i) Corellian Windows Ltd Post-Closing Trial Balance as at 31 July 2010 No. 100 110 120 130 150 151 200 210 300 310 Account Title Cash Accounts Receivable Cleaning Supplies Prepaid Insurance Motor Vehicles Accumulated Depreciation Motor Vehicles Accounts Payable Salaries Payable Share Capital Retained Earnings $21,900 Debit $ 4,050 6,300 900 1,650 9,000 300 3,600 600 13,500 3,900 $21,900 Credit $

j) $150 = 1,650 300 -150 - 450 600

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