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Journal entries and adjusting journal entries (25 marks)

STU Ltd provides computer training services. STU charges $8,000 per day and allows customers 30
days to pay invoices. The following events occurred for STU Ltd during the month of June 2016:

a) Issued shares for cash consideration of $40,000.


b) Delivered twenty days of training during the month ending 30 June 2016.
c) Received $176,000 cash for invoices previously raised in May 2016.
d) On June 1st, paid $30,000 for three months of rent covering 1 June 2016 to 31 August 2016.
e) Prepaid petrol cards at 31 May 2016 are $1,500. The petrol cards were used up during the
month ending 30 June 2016.
f) Received cash for five days of training to be delivered in the first week of July 2016.
g) Depreciation on a motor vehicle for the month ending 30 June 2016 is $1,000.
h) Paid wages of $80,000 during the month. Wages owing at 31 May 2016 are $10,000. Wages
owing at 30 June 2016 are $15,000.
i) Interest on a bank loan for the month of June is $800 but has not yet been paid.
j) Cash dividends of $5,000 declared and paid.

Use the following chart of accounts to prepare journal entries and adjusting journal entries to record
the transactions above.

Assets Liabilities
A1 Cash L1 Accounts payable
A2 Inventory L2 Unearned revenue
A3 Accounts receivable L3 Wages payable
A4 Prepaid rent L4 Rent payable
A5 Prepaid petrol L5 Interest payable
A6 Equipment L6 Income tax payable
A7 Accumulated depreciation – Equipment L7 Loan
A8 Motor vehicle
A9 Accumulated depreciation – Motor Vehicle
A10 Goodwill Shareholders’ Equity
SE1 Share capital
SE2 Retained profits

Revenues Expenses
R1 Sales revenue E1 Cost of goods sold
R2 Service revenue E2 Petrol expense
R3 Rent revenue E3 Wages expense
R4 Interest revenue E4 Rent expense
E5 Interest expense
E6 Depreciation expense

1
Transaction Account name Debit Credit
number
$ $

a Cash 40,000

Share capital 40,000

b Accounts receivable 160,000

Service revenue 160,000

c Cash 176,000

Accounts receivable 176,000

d Prepaid rent 30,000

Cash 30,000

Rent expense 10,000

Prepaid rent 10,000

e Petrol expense 1,500

Prepaid petrol 1,500

f Cash 40,000

Unearned revenue 40,000

g Depreciation expense 1,000

Accumulated depreciation– Motor Vehicle 1,000

h Wages payable 10,000

Wages expense 70,000

Cash 80,000

Wages expense 15,000

Wages payable 15,000

i Interest expense 800

Interest payable 800

j Retained profits 5,000

Cash 5,000

1 mark each for a journal entry (account name and amounts)

2
Bank Reconciliation (6 Marks)

The following information is given about Nadak Co.:

1. The August 31 balance shown on the bank statement is $9,810.

2. There is a deposit in transit of $1,260 at August 31.

3. Outstanding cheques at August 31 totalled $1,890.

4. A bank charge of $40 for cheques was made to the account during August, as shown on the
bank statement. Although the company was expecting a charge, its amount was not known
until the bank statement arrived.

5. In the process of reviewing the cheques, it was determined that a cheque issued to a
supplier in payment of accounts payable of $361 had been recorded as $631.

6. The August 31 balance in the general ledger Cash account, before reconciliation, is $8,950.

Required:

Part A: Prepare a bank reconciliation as of August 31, 2016. (4 marks)

Balance per bank $9,810 CR (0.5mark)


Add: Deposits in transit 1,260 (0.5mark)
Less: Outstanding cheques (1,890) (0.5mark)
Adjusted balance $9,180 CR (0.5mark)

Balance per accounting records $8,950 DR (0.5 mark)


Less: Bank charge (40) (0.5mark)
Add: Cheque recording error 270 (0.5mark)
Adjusted balance $9,180 DR (0.5 mark)

3
Part B: Prepare any necessary adjusting journal entries. (2 marks)

Account name Debit Credit

$ $

Bank charges 40

Cash at Bank 40

Cash at Bank

Accounts payable 270

270

1 mark each journal entry

(No mark deduction for a combined adjusting journal


entry.)

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