Question 1-
Jackson, a friend of yours was running a retail business with some old friends. The rest of the shareholders were passive in the business. He kept his own accounts as he wants to save cost. After preparing the financial statements, he was happy that the company managed a healthy profit. However, before he releases the result to the other shareholders, he would like you to check his preparation and the financial statements. He provided you with the trial balance as follow:
MxTrust Pte Ltd Trial Balance
31 December 20X1
Account Title
Cash
Inventory
Purchases
Accounts receivable
Prepaid rental
Prepaid insurance
Plant & equipment
Accumulated depreciation - P & E
Salaries expense Utilities expense
Rental expense
Insurance expense
Depreciation expense
Account payable
Revenue
Unearned revenue
Long term loan
Share capital
Debit
$
41,000
3,450
68,200
35,000
24,000
4,800
100,000
104,000
34,200
12,000
1,400
10,000
Credit
$
30,000
13,200
250,000
9,000
40,000
60,000
Question 2-
Retained earnings 35,850
438,050 438,050
Before you start preparing the statements, you went to his office to talk with him and his staff and discover the followings:
(i) Dividends amounting to $6,900 were approved at the AGM on 12 December but shareholders will only get the payment in January the next year. Jackson had decided not to make any entries since the whole process will only be completed next year and the shareholders are all old friends.
(ii) As of 31 December, salaries of $750 had been earned by employees but will not be paid until January 2, 20X2.
(iii) A stock count showed no inventory available as at 31 December.
(iv) The prepaid insurance was bought on 1 May to cover the office for a year. The initial entries were recorded correctly and subsequently no entries were recorded.
(v) On 1 July, the company extended the rental of the current office for another year and paid $24,000 in cash.
(vi) As of 31 December, 20X1, the revenue included a customer's order amounting to $12,000. The order was not filled yet since the merchandise was out of stock. The latest update was that the company expects to receive the merchandise and fill the order by January 2, 20X2. Jackson had included this in the revenue for the year as the merchandise was originally to be made available by mid-December 20X1.
(vii) The tax for the year was $890.
Required:
(a) Comments on Jackson's treatment of the above accounts and explain to him how they should be treated.
(b) After making all the necessary adjusting entries, prepare:
(i) The statement of comprehensive income for MxTrust for the year ending 31 December 20X1.
(ii) The statement of financial position for MxTrust as at 31 December 20X1.