Assignment

Silicon's Computer Emporium (SCE) is preparing their financial reports for the year ending 30th June 2016. SCE specialises in selling new and used computers. The owners of SCE have prepared the financial reports themselves and with the help of their part time accountant who is a family member with some business experience but no formal accounting qualifications. Unfortunately, the owners have not studied accounting and believe they have made a number of mistakes when preparing the end of year financial reports. They have asked you for assistance in preparing the financial reports. You are given all of the information used to prepare the financial reports for the 12 months ending 30th June 2016 (ie 1st of July 2015 - 30th June 2016). The owners were also not sure about adjusting entries and want you to make sure any adjusting entries have all been recorded correctly. Therefore, they would like you to process any entries that are deemed necessary. During your investigation you have identified the following issues which may require further action:

(a) The telephone bill for the shop was still owing for the quarter ending 30th June 2016. The owners had planned to pay the bill and instructed their accountant to record a debit to Telephone Expense and a credit to Cash at Bank for $600, the amount for the telephone bill (ie the payment for the bill was recorded as instructed above, on the 10th of June). However, because everyone was so busy with the stocktake sales, the telephone bill was not paid and remains unpaid at the 30th of June.

(b) The owner purchased supplies using cash during the period totalling $860. At the 30th of June 2016, supplies were counted and it was determined that $410 remained on hand at the end of the period. The only reference to supplies that can be found in the accounting records for the reporting period is the following entry:

Date Details Dr Cr
1/10/15 Supplies Expense 800
Cash at Bank 800

(c) The owner paid for the insurance for the building and premises for 12 months on the 1st of March 2016. The amount paid in cash was $1,800. The accountant was not sure how to account for the payment made and recorded the following entry:

Date Details Dr Cr
1/3/16 Insurance Expense 1,800
Cash at Bank 1,800

(d) Office equipment was purchased by the business for $5,000 cash on the 1st of March 2016. The purchase of the equipment was recorded correctly on the 1st of March. The owner replaces office equipment every 5 years and throws the old equipment away after the five years have elapsed. The owner has not recorded anything else relating to this non-current asset for the year ending 30th June 2016 (only the initial purchase of the equipment has been recorded).

(e) Inventory sold on the 27th of June 2016 was found not to have been recorded in the accounting records. An investigation identified that the original cost of the inventory totalled $1,700 and was sold to customers for $2,800 cash.

(f) A customer had paid $1,500 cash in advance on the 12th of June 2016 for a new computer. It was anticipated that the computer would be in stock and delivered to the customer before the end of the financial year and so the cash received was recorded as a debit to "Cash" and a credit to "Sales" immediately. Unfortunately, due to a delay in transit, the inventory did not arrive into the warehouse until the 27th of July and was not delivered to the customer until the 5th of August 2016. As soon as the owner identified that there would be a delay in the supply of the inventory to the customer, the owner decided to refund 10% of the original amount paid by the customer as a gesture of goodwill. A bank transfer was made into the customer's bank account by the business for this amount on the 26th of June 2016. No entry had been processed yet for the return of the 10% to the customer because everyone had been too busy.

(g) One of the owners of SCE received his electricity bill for his home address and paid for the bill using a cheque written from the business cheque account (ie he used cash from the business to pay for the electricity bill). The amount paid was $328. Because the electricity bill was for his house and not for the business, he did not record anything in the business records because he believes anything to do with the house is not relevant to the business so should not be recorded.

(h) The owner was worried that the performance of the business was not as good as the previous period and profits would be lower for the year ending 30 June 2016. Therefore, he invested an additional $30,000 cash into the business and instructed the accountant to record the following entry:

Date Details Dr Cr
1/11/15 Cash at Bank 30,000
Contributed Income 30,000

(i) During the year, one of the owners took home inventory (a computer) for personal use (original cost $600). The owners recorded a debit to the "Miscellaneous Expenses" account and a credit to "Office Equipment" for $600.

(j) The owner asked the accountant to purchase a wall clock for the staffroom which cost $80 to buy. The accountant paid $80 cash from the business' bank account and had the clock installed on the staffroom wall. The accountant did not record anything because he remembered during his studies that if an amount was not material, you don't have to worry about recording anything.

(k) During December 2015, it was clearly apparent that the business required a larger shop to sell the inventory or they would start to lose customers because they could not display enough inventory in the shop. The current shop was being rented for $500 a month and there were still 3 months rent remaining in the rental agreement as at 30th June 2016 (ie until the end of September 2016). A new shop was found and the owner decided they would move into the new shop during July 2016 and start trading from the new shop from the 1st of August 2016. The old shop would close at the end of July 2016 and remain empty until the end of the rental agreement (ie from the 1st of August - 30th of September).

The rent for the new shop was $750 per month (as it was a much larger shop) and a payment of $7,500 was made for 10 months on the 30th of June 2016 covering rent from the 1st of August 2016 until the end of May 2017. A closer inspection of the accounting records revealed the only reference to the above events was the following entry:

Date Details Dr Cr
1/10/15 Prepaid Shop Rent 6,000
Cash at Bank 6,000

(l) Upon inspection of payroll records it was identified that some wages were still owing to employees. A total of $3,260 was still outstanding for wages owing to employees for the year ending 30th June 2016. This amount had not been paid by the 30th of June 2016 and nothing had been recorded yet.

(m) The monthly bank statement for the month of June was received on the 30th of June. It showed that interest earned on the bank account was $85 for the month of June. The bank statement also indicates that bank fees for June were $28. Neither of these items has been recorded by the owner. The bank statement also shows that a customer used direct deposit to pay for the amount owing for a credit sale recorded as a debit to Accounts Receivable and a credit to Sales Income on the 10th of June (the computer was delivered to the customer on the 25th of June 2016). The amount paid by the customer was $1,500 and SCE has only just found out about the payment by the customer when they received the bank statement and checked their records and found a printed email from the customer confirming that the customer would pay using direct deposit.

(n) An advertising campaign was paid for involving radio commercials for 6 months for the period 1st of April - 30th September 2016. $12,000 was paid in cash on the 27th of March and a debit was recorded to "Prepaid Advertising" and a credit to "Cash at Bank" for $12,000. Nothing else can be found in the accounting records in relation to the advertising.

(o) SCE uses a periodic inventory system to record inventory. The accounting records indicate that opening inventory on the 1st of July 2015 was $110,900. A physical stocktake on the 30th June 2016 indicated that inventory on hand was $105,200. The owners did not make any changes to the financial reports because they were unsure what to do. They have made a note in the financial reports to ask you whether they need to account for the discrepancy between the inventory figures.

(p) All non-current assets purchased by the business are depreciated using straight line depreciation as this is the only method the owners are aware of.

(q) Unless otherwise stated, depreciation has already been recorded for all noncurrent assets and you have checked the records and are satisfied that the calculations for depreciation for the non-current assets are correct.

(r) The owners want all entries to be processed on the 30th of June. Therefore, any entries processed for the information above must ALL be dated 30th June 2016. If any items should have been recorded at an earlier date, do not use the earlier date in the entry - the owners want everything recorded and dated on the 30th of June - 3 marks will be deducted if entries are dated anything other than 30th June 2016.

(s) Narrations for the entries are not required.

(t) Please show all calculations in the template in the calculations section. Please leave a line between each journal entry to make it easier to view and mark the assignment. All entries are for the 30th of June. Hence please denote each item you answer with the letter associated with the assignment. This can be written in the "Date" column (please see below - the entry has been made up for illustrative purposes)
General Journal Pro forma - Narrations are not required

Date Details Debit Credit
(a) Wages Expense 3,100
Wages Payable 3,100

REQUIRED

Prepare the general journal entries to make (if) necessary, adjustments/corrections for the information presented to you above. Students need to use the assignment template available for download from the unit website.

HINT: If you believe an entry is not required (that is, the information has been recorded correctly), please indicate in your answer why you think that an entry is not required. You are encouraged to refer to your assumed knowledge from ACG11 and the Conceptual Framework wherever possible.