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:

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.