ACCT1008-Accounting for Business

QUESTION 1: Balance Day Adjustments 

Jacque Mercedes owns and operates a successful tour business specialising in mountain e-bike adventure holidays. The business also sells a range of cycling products but its main item is a custom made mountain e-bike, “Vampex”. The “Vampex” is made only for The E-Bike Tour Company and has recently featured in a number of bike touring / holiday magazines. As a result of this recent positive media coverage, Jacque has been too busy to undertake any record keeping for the company and has handed the record keeping over to the accounting practice where you work as a graduate accountant.

REQUIRED:

Prepare the Balance Day Adjustment Journals for The E-Bike Tour Company where required in the proforma provided on the next page.  Include narration (explanation) for each journal entry. If there are any transactions that you consider do not require a journal, provide an explanation why a journal is not required.

I.$1,250 of the Unearned Sales is for a “Vampex” E-bike that was ordered and paid for in May 2019 and delivered on the 29th June 2019.

II.Jacque was reviewing the previous month’s journal entries and realised that $140 had been put into the electricity account in error and should have been put into the advertising account. This needs to be corrected.

III.The prepaid rent was paid on 1 June 2019 and was Warehouse/Office rent for the two months ending July 31st 2019.

IV.A physical stocktake of inventory at 30 June 2019 revealed $21 900 on hand.

V.It is estimated that 1% of the 30 June 2019 balance of Accounts Receivable is unlikely to be received.

VI.The Warehouse Shelving is expected to be used evenly over its useful life of four years and it is anticipated that it will have no residual value and will be donated to the Salvation Army at the end of its useful life.

VII.The business insurance costs $150 per month. The last insurance payment made was for 12 months commencing 1 March 2019.

VIII.Wages owing to the E-Bike Tour Guide at balance day equals $842.

IX.The Camping Equipment is expected to depreciate at 20% per year and will have no residual value.

QUESTION 2: Financial Statement

Mr Myles owns and manages, Get More Myles, a bike mechanic workshop, specialising in repairing bikes and selling bike parts. The following Trial Balance for Get More Myles has been prepared at year end by Mr Myles.

Additional Information:

Mr Myles confirmed that the Gross Profit for the year ended 30 June 2019 is $209,736, Selling Expenses are $63,335, Administration Expenses are $101,640 and the Finance Expenses are $7,449.

The stocktake performed by Mr Myles on the 30 June 2019 revealed a stock balance of $49,900.

REQUIRED:

Prepare a fully classified Balance Sheet and Statement of Changes in Equity for the year ending 30 June 2019.

QUESTION 3: Accounting Concepts (15 marks)

You are a graduate accountant working for Pickets and Pritchard Chartered Accountants. 

Mr Mercedes has had a meeting with the Managing Partner of Pickets and Pritchard today and you were invited to attend the meeting. Mr Mercedes was provided with the year end financial statements and also the print out of the Balance Day Adjustment journals that you processed at year end for The E-Bike Tour Company in order to prepare the financial statements. You notice Mr Mercedes looking quite happy when he looks at the Income Statement but his expression changes to a look of confusion when reading through the General Ledger of Balance Day Adjustments. 

Mr Mercedes starts asking the Managing Partner a number of questions about the Balance Day Adjustment journals.

After the meeting, the Managing Partner tells you she is extremely busy with a number of clients at the moment and therefore asks you to prepare a letter to Mr Mercedes which covers the points listed below. When you have completed the letter, the Managing Partner has asked that you send it to her for review and from there it will be sent to the client.  

REQUIRED:

Please write a letter in your own words to Mr Mercedes explaining the following:

·The purpose of Balance Day adjustment journals.

·Using the Balance Day Adjustment journals below as an example, identify and explain the potential impacts on the Income Statement and Balance Sheet if these two Balance Day Adjustment journals are not posted / processed. You must conclude what the overstatement or understatement would result in both, the Income Statement and Balance Sheet.