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Acc106 Accounting Principles: Case Scenario Assessment Answer

Question:

Task

Alfie Lockyer decides to start up a business as a sole trader on 1 July 2020. Alfie’s Rugby League Memorabilia and Framing Services will sell a range of different memorabilia items including framed jerseys, signed footballs and signed photos of famous rugby league players both online and from a retail shop in Caloundra, Queensland. The business will also provide professional framing services for customers from its retail shop.

The chart of accounts for the business is shown below:

 

Account number

Account name

Assets

1001

Cash at bank

 

1002

Accounts receivable

 

1003

Inventory

 

1004

Office supplies

 

1005

Prepaid rent

 

1006

Framing supplies

 

1101

Shop fixtures and fittings

 

1102

Accumulated depreciation – shop fixtures and fittings

 

1103

Office equipment

 

1104

Accumulated depreciation – office equipment

Liabilities

2001

Accounts payable

 

2002

Wages payable

 

2003

Interest payable

 

2004

Electricity payable

 

2101

Bank loan

Equity

3001

A. Lockyer, capital

 

3002

Drawings

 

3101

Profit or loss summary

Income

4001

Sales income

 

4002

Framing services income

Expenses

5001

Cost of sales

 

5002

Advertising expense

 

5003

Wages expense

 

5004

Insurance expense

 

5005

Phone and internet expense

 

5006

Electricity expense

 

5007

Office supplies expense

 

5008

Framing supplies expense

 

5009

Rent expense

 

5010

Interest expense

 

5011

Depreciation expense – shop fixtures and fittings

 

5012

Depreciation expense – office equipment

 

Below are the transactions for the business for its first month of operations:

1 July 2020 Alfie Lockyer invests $50,000 cash to start the business.

1 July 2020 Borrowed $10,000 cash from the Southpac Bank at an interest rate of 5% per annum payable in arrears on 31 December and 30 June each year.

1 July 2020 Paid $12,000 cash for 12 months’ rent on the shop till 30 June 2021.

1 July 2020 Sunny Coast Shopfitters completed the fixtures and fittings for the shop at a total cost of $19,880 which is due to be paid by the end of July.

1 July 2020 Purchased office equipment for $5,000 cash and office supplies for $350 cash.

2 July 2020 Purchases framing supplies for $590 cash.

2 July 2020 Purchased the following memorabilia items for cash:

  • Framed Brisbane Broncos jersey signed by all members of the 1992 premiership winning team: Cost = $1,100 (Item BB1992);
  • Signed Billy Slater football boots: Cost = $575 (Item BS2004);
  • Football signed by all members of the 2010 Queensland State of Origin team: Cost = $1,530 (Item QLD2010);
  • Signed photo of 2010 NSW State of Origin team: Cost = $195 (Item NSW2010);
  • Signed photo of 1957 Australian Kangaroos team that won the Rugby League World Cup: Cost = $855 (Item WC1957).

2 July 2020 Incurred online advertising expenses of $3,000. Half of this amount is due to be paid by 23 July, with the remainder due on 13 August.

3 July 2020 Provided framing services for $1,350 cash.

4 July 2020 Sold item BS2004 for $940 cash.

6 July 2020 Sold item WC1957 for $1,560 to a customer on credit. Amount is due in 14 days.

7 July 2020 Paid $250 wages in cash to casual employee.

9 July 2020 Provided framing services for $1,075 cash.

11 July 2020 Purchased framing supplies for $665 cash.

12 July 2020 Provided framing services for $742 cash.

13 July 2020 Purchased the following memorabilia items for cash:

  • Signed and framed Jonathon Thurston poster: Cost = $475 (Item JT2017);
  • Framed photo of North Queensland Cowboys 2015 Premiership team: Cost = $350 (Item NQ2015);
  • Framed South Sydney jersey signed by all members of 2014 premiership winning team: Cost = $840 (Item SS2014);
  • Signed Wally Lewis match-worn football boots: Cost = $490 (Item WL1991);
  • NRL 2000 Grand final match ball signed by all members of Brisbane Broncos and Sydney Roosters: Cost $1,250 (Item NRL2000).

14 July 2020 Paid $300 wages in cash to casual employee.

16 July 2020 Received amount owing from customer from credit sale on 6 July.

17 July 2020 Sold Item NRL2000 for $2,090 cash.

19 July 2020 Provided framing services for $1,520 cash.

20 July 2020 Paid insurance expense of $525 for July in cash.

21 July 2020 Sold Item JT2017 to a customer on credit for $870. Amount is due within 14 days.

21 July 2020 Paid $500 wages in cash to casual employee.

22 July 2020 Paid amount owing for online advertising.

22 July 2020 Purchased framing supplies for $743 cash.

23 July 2020 Sold Item BB1992 to a customer on credit for $2,430. Amount is due within 14 days.

24 July 2020 Provided framing services for $928 cash.

25 July 2020 Paid $245 cash for phone and internet expenses for July.

25 July 2020 Sold item QLD2010 for $2,890 cash.

26 July 2020 Paid amount owing to Sunny Coast Shopfitters.

27 July 2020 Sold item NSW2010 for $200 cash.

28 July 2020 Paid $450 wages in cash to casual employee.

29 July 2020 Sold item WL1991 for $925 to a customer on credit. Amount is due in 14 days.

29 July 2020 Provided framing services for $2,890 on credit. Amount is due to be paid within 14 days.

30 July 2020 Purchased framing supplies for $1,148 cash.

30 July 2020 Received amount owing from customer for credit sale on 21 July.

31 July 2020 Alfie Lockyer withdrew $5,000 cash from the business.

31 July 2020 Received $850 electricity bill for the month of July. Amount is due to be paid in 7 days’ time.

Below is some additional information relating to the transactions for the business for July 2020 (relevant for adjusting entries):

  • One month of rent expense was incurred at 31 July;
  • Wages of $165 were earned by the casual employee in the last few days of the month and the next payday is on 4 August;
  • Interest expense on the bank loan was incurred during the month with the next interest payment to the bank due on 31 December 2020;
  • A stocktake on 31 July revealed that the cost of supplies still on hand were as follows:

o  Office supplies = $60;

o  Framing supplies = $1,240.

  • Additional information for calculating depreciation expenses for July (ie one month) were as follows:

o Shop fixtures and fittings: estimated useful life = 10 years, estimated residual value = $1,000;

o Office equipment: estimated useful life = 4 years; estimated residual value = $500.

Required:

Complete the following for Alfie’s Rugby League Memorabilia and Framing Services for the month of July 2020:

  1. Record the above transactions for 1 to 31 July in the general journal;
  2. Post/transfer the transactions to the relevant ledger accounts;
  3. Using the above additional information, record the necessary adjustingentries in the general journal and post them to the relevant ledger accounts;
  4. Record the necessary closing entriesin the general journal and post them to the relevant ledger accounts;
  5. Prepare a post-closing entry trial balance. Refer to example on p. 438 of Deegan textbook. NOTE:Balances should be linked to the closing balances in the ledger accounts;
  6. Prepare an income statementfor the period ended 31 July 2020 (following the format on p. 523 of Deegan textbook). NOTE: Gross profit should be calculated; Expenses should be listed as they appear in the chart of accounts; and Tax expense should be ignored).
  7. Prepare a balance sheetas at 31 July 2020 (following the format on pp. 438-439 of Deegan textbook). NOTE: Balances should be linked to the closing balances in the ledger accounts.


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