financial accounting

ACCOUNTS RECEIVABLE

At 30 September 2004, Amoy Distribution has a debit balance of $921,725 in its Accounts Receivable account and a credit balance of $9,300 in the Allowance for Doubtful Debts account.

In reviewing the accounts receivable record, you determine the following:

An amount of $1,125 due from John Hunter (included in the overdue category) is considered irrecoverable and is to be written off. ?A remittance of $2,700 was received from Lucy Johnson on 28 August 2004 for an overdue account that was written off in previous year. The following is an aged analysis of its accounts receivable:

?

Age Current Overdue

Amount $720,600 201,125 $921,725

The firm uses the allowance method to provide for credit loss. According to previous experience, you estimate that a 3% allowance on overdue accounts should be made for doubtful debts. Required a)Prepare general journal entries to record the write-off of the account due from John Hunter. b)Prepare general journal entries to adjust the recovery of bad debt transaction on 28 August 2004. c)

Calculate the required allowance for doubtful debts according to information given. d)Prepare a general journal entry to adjust the balance of the allowance for doubtful debts account to the required level. Show your workings. e)Prepare an extract to show how the Accounts Receivable would appear in the Balance Sheet at 30 September 2004.

Bank Reconciliation

The bank account in Goodday Tyres’ ledger had a debit balance of $2,864 at 1 October 2004. During October, cash receipts totalled $12,324 and cash payments totalled $11,730, before items noted below. The bank statement for October showed a closing balance of $4,429 (in funds). The following points were noted during the reconciliation process:

? A cheque issued on 20 October for $4,860 was recorded incorrectly in the cash payments journal as $4,680. The cheque was originally made to Better Tyres, a supplier, for the amount due on stock purchased in September.

? Bank service charges for October amounted to $32. This had not been recorded by the firm.

3.The bank statement showed the firm’s bank account had been credited with an

amount of $840. This amount was found to have been paid by Maidrock Motors, a customer of the firm, to settle their account for September.

4.Cheques issued but not presented to the bank for payment at 31

October 2002 totalled $4,570.

? Included with the October bank statement was a returned cheque for $1,764. The bank advised the firm on 29 October and the transaction has not been recorded. This cheque was from Murphy Vans in payment of its outstanding account.

? Interest of $45, earned for October on a term deposit, was noted on the bank statement, but had not been recorded by the firm.

? A cheque for $766, received from MS Automotive for an outstanding debt of $766, had been incorrectly recorded in the cash receipts journal as $776.

? A deposit of $2,498, made on 31 October, did not appear in the bank statement. REQUIRED:

Prepare the bank reconciliation statement for Goodday Tyres as at 31 October 2004 and related adjusting entries. Class Exercise_Inventory

1. The inventory records of Beta Ltd. Show the following data for the month of

September with regard to one type of material: Code XY.

Sept 1 Sept 3 Sept 6 Sept 10 Sept 16 Sept 25 Sept 30 Inventory on hand Purchase of goods Sale of goods Sale of goods Purchase of goods Sale of goods Stock shortage 600 units 200 units 400 units 250 units 500 units 500 units 50 units cost $6 per unit cost $6.40 per unit cost $6.20 per unit

Required

(a)Prepare the stores ledger cards using:

?FIFO

?Weighted Average Cost

(b)Calculate the cost of goods sold for item, Code XY, using both of these methods

2. Peter Peterson operates a home-based business, which distributes “BurglarProof”, an imported alarm system. This is a new product that Peter is stocking. Peter uses the perpetual inventory system, ignore taxes.

During the months of May 2004, the following transactions (all on credit) occurred.

Date

May

Particulars

Bought 200 units from NZ Security at $225 each.

5

8 13 14

Sold 20 units to Lock Smith at $450 each

2 faulty units were returned by Lock Smith, credit note was issued. The two faulty units were returned to NZ Security for credit.

REQUIRED:

(a)Record the May transactions in General Journal format.

(b)How would you have recorded the transactions differently if the firm uses a

periodic inventory system?

PPE Class Exercise

Limestone Landscaping Services commenced business on 1 October 1999. Among their initial assets was a parcel purchased from a failed competitor for a total of $579,600. The company also paid a fee of $5,400 for a valuation on these assets to be done. The purchase and the professional fee were paid in cash on 3 October 1999. The company has a 31 March balance date.

The valuation report showed the following values:

Building $ 324,000

Machinery 189,000

Truck 27,000

The new assets were then depreciated as follows: Asset Building Machinery Useful Life 50 years 6 years Residual Value Depreciation Method Nil Straight-line $32,000 Unit-of-Use (Total machine hours = 60,000) Truck 3 years $12,000 Reducing balance @30% p.a.

The machinery was used for 12,000 hours in the year ending 31 March 2000 and

25,000 hours in the year ending 31 March 2001.

The truck was traded in for a new model costing $39,600 on 1 April 2001. Trade-in value of the old truck was $18,000.

REQUIRED:

a) Prepare the general journal entry to record the purchase of the three assets on 3

October 1999 and the payment of the valuation fee.

b) Calculate the depreciation expense on each asset for the years ending

31 March 2001.

c) Prepare an extract to show how the Machinery account would appear in the

Balance Sheet at 31 March 2001.

d) Calculate the gain/loss on disposal of the truck and prepare the general journal

entry to record the asset trade-in.

Statement of cash flows class exercises

The Income Statement for the current year and comparative Balance Sheets at 30 September 2004 of South Pacific Trading Limited are presented below: South Pacific Trading Limited

Balance Sheet as at 30 September 2004

Assets Cash

Accounts Receivable Control Allowance for Doubtful Debts Inventory

Prepaid Expenses Plant and Equipment

Accumulated Depreciation Total Assets

Liabilities and Shareholders' Equity Accounts Payable Control Wages Payable

Income Tax Payable GST Payable Bank Loan Capital

Retained Earnings

Total Liabilities & Shareholders’ Equity

2004

2003 $15,750 38,000

0 91,000 4,000 256,000 (60,000) $344,750

$24,000 6,000 4,000 2,750 100,000 120,000 88,000 $344,750

$22,975 41,375 (1,000) 84,000 5,000

291,000 (74,000) $369,350

$30,750

5,000 2,000 3,600

75,000 140,000 113,000 $369,350

South Pacific Trading Limited

Income Statement for the year ended 30 September 2004

Sales

Less: Cost of Goods Sold Gross Profit Less: Expenses Doubtful Debts Expense Wages Expense

Depreciation Expense Interest Expense Other Operating Expenses Income Tax Expense Net Surplus

$385,000 227,000

$158,000 $1,000 58,000 28,000 11,000 8,000 10,000

116,000 $42,000