Week 3 Discussion Problems

FAA 2015.1 Discussion problems_ week 3

FAA 2015.1 Discussion problems_ week 3

Exercise 3.10Recording transactions in general journal and general ledger

In December 2016, the following transactions occurred in Macchiatos Coffee Roasters business that supplies cafs and also sells direct to the public:

Dec.2Michael Macchiato invested $2 650 000 into the business of Macchiatos Coffee Roasters by purchasing a fully equipped coffee roasting business. The business acquired consisted of the following assets and liabilities:

Land$1 200000Building1 000000Coffee roasting equipment420000Office equipment60 000Accounts payable30000

56121418

23

30Purchased some new roasting equipment on credit for $160000.Collected cash from customers for the month, $220000.Paid the accounts payable owing on 2 December when Michael purchased the business.Purchased an insurance policy for the year for $6000 cash.Purchased television advertising for the Christmas New Year period for $8000 to be paid for in 30 days.Collected fees in cash from customers for the Christmas New Year period, amounting to $46000.Michael withdrew $8000 cash in order to pay for private Christmas presents and parties.

RequiredA. Prepare general journal entries for each of the above transactions and events.B. Post the entries to ledger T accounts and balance the accounts as at 31 December 2016.

A.MACCHIATOS COFFEE ROASTERS (ignore GST)

Dec.2Land1200000

Building1000000

Coffee Roasting Equipment420000

Office Equipment60000

Accounts Payable30000

Michael Macchiato, Capital2650000

Assets and liabilities contributed by the owner

5Coffee Roasting Equipment160000


Purchase of roasting equipment on credit

6Cash at Bank220000

Coffee Sales220000

Cash received for coffee sales for December.

12Accounts Payable30000

Cash at Bank30000

Cash paid for creditor for roasting equipment.

14Prepaid Insurance6000

Cash at Bank6000

Cash paid in advance for insurance policy.

18Advertising Expense*8000


Advertising costs over the holiday period

23Cash at Bank46000

Coffee Sales 46000

Coffee sales received for the holiday period.

30Michael Macchiato, Drawings8000

Cash at Bank8000

Cash withdrawn by owner

* Alternatively, debit Prepaid Advertising (asset), as not all of the expense applies to the month of December.

B.Cash at Bank

Dec6Coffee Sales220000Dec12Accounts Payable30000

23Coffee Sales4600014Prepaid Insurance6000

30Michael Macchiato, Drawings8000

31Balance c/d222000

266000266000

31Balance c/d222000

Land

Dec2Macchiato, Capital1200000

Building


Coffee Roasting Equipment


5Accounts Payable160000Dec31Balance c/d580000

580000580000

31Balance b/d580000

Office Equipment

Dec1Michael Macchiato, Capital60000

Prepaid Insurance

Dec14Cash at Bank6000

Accounts Payable

Dec12Cash at Bank30000Dec2Macchiato, Capital30000

31Balance c/d1680005Coffee Roasting Equipment160000

18Advertising Expense8000

198000198000

Dec31Balance b/d168000

Michael Macchiato, Capital

Dec2Various Assets and Accs payable 2650000

Michael Macchiato, Drawings


Coffee Sales


Dec31Balance c/d26600023 Cash at Bank46000

266000266000

31Balance b/d266000

Advertising Expense


Exercise 3.12Identifying and explaining errors

When processing the accounts for Ellises Electrical Contractors, the following errors were made:

(a)Electrical equipment purchased for $7800 cash was debited to Equipment and credited to Accounts Payable for an incorrect amount of $8700.(b) Collection of an account receivable for $4500 was recorded by a debit to Cash at Bank and a debit to the equity account of the owner.(c)A cheque for $6000 issued to pay for an account payable was recorded as a debit to Accounts Payable and a credit to Accounts Receivable for $6000.(d)A $2100 payment for assorted electrical tools was recorded as a debit to Equipment and a credit to Cash at Bank for $210.(e)Cash of $2000 withdrawn by the owner from the business was debited to Salaries Expense and credited to Cash at Bank.

RequiredA. Identify which of the above errors would cause unequal totals in a trial balance prepared at the end of the period.B. Write a brief explanation for each error to indicate how it could be fixed in the accounting records.

A.(a)The trial balance will still balance in spite of this error as there is an equal debit and credit for $8700, even though the credit to the Accounts Payable account was incorrect. The correct entry should have been to debit Office Equipment and credit Cash at Bank for the amount of $8700.(b)There should have been a credit to Accounts Receivable instead of a debit to the Capital account. This will cause an unequal total in the trial balance because two debit entries were recorded in error, and no credit.(c)The trial balance will still balance in spite of this error as there is an equal debit and credit for $6000, even though the wrong account was credited.(d)The trial balance will still balance in spite of this error, as the debit and credit were both equal to $210.(e)The trial balance will still balance in spite of this error as there is an equal debit and credit for $2000, even though the wrong account was debited.

B.(a)To fix this error, the following journal entry is needed:


Electrical Equipment900

Cash at Bank7800

Correcting errors made in certain asset and liability accounts

This entry will bring the balance in the Office Equipment account to its correct amount of $7800, as $900 is deducted from the amount already recorded. $8700 is reversed out of the Accounts Payable account and the correct amount of $7800 is then credited to Cash at Bank.

(b)In order to fix this error, the error in the Capital account will need to be eliminated by crossing out the amount of $4500 from the account; and the debit in the Accounts Receivable account for $4500 will need to be crossed out and then the amount will need to be credited to the account.(c)To fix this error, the entity needs to record another journal entry to debit Accounts Receivable and to credit Cash at Bank for $6000.(d)To fix this error, there will need to be an additional journal entry to debit the Equipment account and credit the Cash at Bank account for $1890.(e)To fix this error, the entity needs to record another journal entry to debit the Drawings account and to credit Salaries Expense for $2000.

Problem 3.2Journal entries, posting to ledger and trial balance

On 1 July 2015 Nicole Andreou opened a beauty parlour. The following transactions occurred during the first month of operations (ignore GST):

July2

23

4616

2023Andreou invested $120000 in the business by depositing cash into a business cheque account with the Eastpac Bank.Paid $1800 for the first months rent.Purchased equipment by an online bank transfer for $32 000 and signing a commercial loan agreement for $38 000.Purchased supplies for $8400.Paid advertising expense of $890.Recorded beauty services revenue for the first half of the month of $3250 in cash and $620 on credit.Paid insurance expense for July of $480 using an online bank transfer.Received a $140 payment from customers who paid on credit in the first half of the month.

283131Andreou withdrew $560 cash for personal living expenses.Recorded revenue for the second half of the month of $3680 in cash and $580 on credit.Paid telephone account of $330 by electronic transfer.

Use the following account titles and numbers: Cash at Bank, 100; Accounts Receivable, 101; Supplies, 102; Equipment, 103; Loan Payable, 200; Nicole Andreou, Capital, 300; Nicole Andreou, Drawings, 301; Revenue, 400; Rent Expense, 500; Advertising Expense, 501; Insurance Expense, 502; Telephone Expense, 503.

RequiredA.Prepare the general journal entries to record the transactions.B.Post the entries from the general journal to the general ledger accounts (running balance format) and enter the posting references in the general journal.C.Prepare a trial balance as at 31 July 2015.

A.General Journal

July2Cash at Bank100120000

Nicole Andreou, Capital300120000

Cash invested by owner.

2Rent Expense5001800

Cash at Bank1001800

Rent paid.

3Equipment10370000

Cash at Bank10032000

Loan Payable20038000

Equipment purchased for cash and loan payable.

4Supplies1028400

Cash at Bank1008400

Supplies purchased.


Cash at Bank100890

Cash paid for advertising.

16Cash at Bank1003250

Accounts Receivable101620

Revenue4003870

Revenue for first half of month

20Insurance Expense502480

Cash at Bank100480

Cash paid for insurance



Receipt of payment from customers

28Nicole Andreou, Drawings301560

Cash at Bank100560

Drawings by owner



Revenue4004260

Revenue for second part of month

31Telephone Expense503330

Cash at Bank100330

Telephone expenses paid

B.ACCOUNT: Cash at BankAccount No. 100

DateExplanationPost RefDebitCreditBalance

2015

27Nicole Andreou, Capital120000120000


37Equipment3200086200

47Supplies840077800


167Revenue325080160

207Insurance Expense48079680

237Accounts Receivable14079820

287Nicole Andreou, Drawings56079260

317Revenue368082940

317Telephone Expense33082610

ACCOUNT: Accounts ReceivableAccount No. 101


2015

167Revenue620620


317Revenue5801060

ACCOUNT: SuppliesAccount No. 102


2015


ACCOUNT: EquipmentAccount No. 103


2015

37Cash and Loan Payable7000070000

ACCOUNT: Loan PayableAccount No. 200


2015

37Equipment3800038000

ACCOUNT: Nicole Andreou, CapitalAccount No. 300


2015

27Cash at Bank120000120000

ACCOUNT: Nicole Andreou, DrawingsAccount No. 301


2015


ACCOUNT: RevenueAccount No. 400


2015

167Cash and Accounts Receivable38703870

317Cash and Accounts Receivable42608130

ACCOUNT: Rent ExpenseAccount No. 500


2015

27Cash at Bank1 8001 800

ACCOUNT: Advertising ExpenseAccount No. 501


2015


ACCOUNT: Insurance ExpenseAccount No. 502


2015


ACCOUNT: Telephone ExpenseAccount No. 503


2015


Problem 3.5Journal entries, entering beginning account balances,

posting to T accounts, and trial balance

The 31 May 2017 trial balance of Amy Wait, Physiotherapist, is shown below. Ignore GST.

AMY WAIT, PHYSIOTHERAPISTTrial Balanceas at 31 May 2017

AccountDebitCredit

Cash at bankAccounts receivableSuppliesPrepaid insuranceFurniture and equipmentAccounts payableElectricity account payableUnearned revenueA. Wait, CapitalA. Wait, DrawingsServices revenueSalary expenseElectricity expenseRent expense$105 00048 00012 3008 200260 600

161 200

170 3009 460 24 000

$

9 7009 5002 900314 960

462000

$799 060$799 060

The following transactions were completed during June:June136101420232426272930Purchased supplies on credit for $5800.Received $24 400 from patients as payment on account.Paid the electricity expense of $9500, previously recorded.Performed services for $2000 that was recorded previously as unearned revenue.Recorded revenue of $178 600 in cash and $13 650 on credit.Paid salaries of $65 880.Purchased furniture for $15 400 and paid by electronic transfer.Withdrew $60000 from the business for personal use.Paid creditors $7000.Purchased insurance policy for $24 000 to cover business assets.Received $12000 from patients as payment on account.Recorded revenue of $124600 in cash and $25000 on credit.Paid rent of $24000.

RequiredA.Prepare journal entries to record each transaction.B.1.Open T accounts for the accounts shown in the trial balance.2.Enter the 31 May balance in each account.3.Post the journal entries to the T accounts.C.Prepare a trial balance as at 30 June 2017.

A.General Journal(GST ignored)

June1Supplies5800


Purchase of supplies on credit.

3Cash at Bank24400


Cash received from patients.

6Electricity Account Payable9500

Cash at Bank9500

Payment of electricity account.

10Unearned Revenue2000

Services Revenue2000

Revenue previously received.




Revenue received and receivable.

20Salary Expense65880

Cash at Bank65880

Salaries paid.

23Furniture and Equipment15400

Cash at Bank15400

Furniture purchased for cash.

24A. Wait, Drawings60000

Cash at Bank60000

Drawings by owner.


Cash at Bank7000

Payment to creditors.

27Prepaid Insurance24000

Cash at Bank24000

Purchase of insurance policy.

29Cash at Bank12000


Payment received from debtors.




Revenue received and on account.

30Rent Expense24 000

Cash at Bank24 000

Payment of rent.

B.Cash at Bank

31/5Balance b/d1050006/6Electricity Account Payable9500

3/6Accounts Receivable2440020/6Salary Expense65880

14/6Services Revenue17860023/6Furniture & Equipment15400

29/6Accounts Receivable1200024/6A. Wait, Drawings 60000

30/6Services Revenue12460026/6Accounts Payable 7000

27/6Prepaid Insurance24000

30/6Rent Expense24 000

30/6Balance c/d238820

$444600$444600

30/6Balance b/d238820

Accounts Receivable

31/5Balance b/d$480003/6Cash at Bank24400

14/6Services Revenue1365029/6Cash at Bank12000

30/6Services Revenue2500030/6Balance c/d50250

$86650$86650


Supplies


1/6Accounts Payable5800Balance c/d18100

1810018100


Prepaid Insurance

31/5Balance b/d$8200

26/6Cash at Bank2400030/6Balance c/d32200

3220032200


Furniture and Equipment

31/5Balance b/d$260600


276000276000


Accounts Payable

31/5Balance b/d9700

26/6Cash at Bank70001/6Supplies5800

30/6Balance c/d8500

1550015500

30/6Balance b/d8500

Electricity Account Payable

6/6Cash at Bank950031/5Balance b/d9500

Unearned Revenue

10/6Services Revenue200031/5Balance b/d2900

30/6Balance c/d900

29002900

30/6Balance b/d900

A. Wait, Capital


A. Wait, Drawings



221200221200


Services Revenue


10/6Unearned Revenue2000

14/6Cash at Bank/AR192250

30/6Balance c/d80585030/6Cash at Bank/AR149600

805850805850


Salary Expense



236180236180


Electricity Expense

31/5Balance b/d9460

Rent Expense



4800048000


C.AMY WAIT, PHYSIOTHERAPISTTrial Balanceas at 30 June 2017

DebitCredit

Cash at Bank$238820


Supplies18100

Prepaid Insurance32200

Furniture and Equipment276000

Accounts Payable$8500

Unearned Revenue900

A. Wait, Capital314960

A. Wait, Drawings221200


Salary Expense236180

Electricity Expense9460

Rent Expense48000

$1130210$1130210

Problem 3.7Preparation of running balance ledger accounts and trial

balance

On 1 March 2014, James Taylor decided to open Taylors Tailormade that makes suits, trousers and jackets and repairs and alters clothes. He contributed for this purpose sewing equipment $46000 and a commercial van $48 000, and deposited $10000 cash in a business bank account. Transactions during March were as follows (ignore GST):

March44

6

7

8

11121314151617182123242528

31Took a 3-year lease on a shop and paid first months rent $1200.Purchased haberdashery supplies for $4200, and paid with an electronic transfer of $1200 and paid for the rest with credit.Cash received for minor clothing repairs, $120.Revenue earned for tailor making a two piece suit for Andrea Fraser on credit, $840.Purchased a sewing machine, $3800, paying $800 cash and taking out a loan for the balance.Cash revenue earned, $1260.Engaged a sewer at an agreed wage of $1100 per week.Paid petrol $120, postage $20, and electricity bill $760.Cash of $200 received for over-the-counter repairs.Revenue of $1500 earned from a customer on credit.Paid for haberdashery supplies purchased on credit on 4 March.Withdrew $600 for own use.Cash revenue received, $380.Haberdashery supplies purchased for $500 on credit.Paid wages to employee.Revenue earned for making clothes: cash $240; on account $1200.Andrea Fraser paid the bill for services rendered on 6 March.Petrol expenses paid $80.Paid weekly wages to employee.Revenue earned for clothes $2420, receiving $200 in cash and the remainder on credit.Haberdashery supplies used, $620.

RequiredA. Prepare three-column running balance ledger accounts. Give each account a suitable account number.B. Prepare a trial balance as at 31 March 2016.

A.ACCOUNT: Cash at BankAccount No. 100


2016

13James Taylor, Capital1000010000


43Haberdashery Supplies12007600

63Tailoring Revenue1207720

73Sewing Equipment8006920


123Petrol, postage & electricity9007280



153James Taylor, Drawings6003880


18 3Wages Expense11003160



243Fuel Expense804160

253Wages Expense11003060


ACCOUNT: Haberdashery SuppliesAccount No. 101


2016

43Cash & Accounts Payable42004200


31 3Haberdashery Supplies Expense6204080

ACCOUNT: Accounts ReceivableAccount No. 110

Date

ExplanationPost RefDebitCreditBalance

2016



21 3Tailoring Revenue12003540



ACCOUNT: Sewing EquipmentAccount No. 112

Date


2016


73Cash & Loan Payable380049800

ACCOUNT: Commercial VehiclesAccount No. 113

Date


2016


ACCOUNT: Accounts PayableAccount No. 201

Date


2016




ACCOUNT: Loan PayableAccount No. 202

Date


2016

73Sewing Equipment30003000

ACCOUNT: James Taylor, CapitalAccount No. 300

Date


2016

13Cash, Van and Equipment104000104000

ACCOUNT: James Taylor, DrawingsAccount No. 301

Date


2016


ACCOUNT: Tailoring RevenueAccount No. 340

Date


2016



81233Cash at BankCash at Bank1260 20022202420

133Cash & Accounts Rec.1500 3920


213Cash & Accounts Rec.14405740

283Cash & Bills Rec.24208160

ACCOUNT: Rent ExpenseAccount No. 351

Date


2016


ACCOUNT: Fuel ExpenseAccount No. 352

Date


2016



ACCOUNT: Electricity ExpenseAccount No. 353

Date


2016


ACCOUNT: Postage ExpenseAccount No. 354

Date


2016

123Cash at Bank2020

ACCOUNT: Wages ExpenseAccount No. 355

Date


2016

18 3Cash at Bank11001100


ACCOUNT: Haberdashery Supplies ExpenseAccount No. 356

Date


2016


B.

TAYLORS TAILORMADETrial Balanceas at 31 March 2016

Account Account No.DebitCredit

Cash at bank100$3260

Haberdashery supplies1014080

Accounts receivable1104920

Sewing equipment11249800

Commercial vehicles11348000

Accounts payable201500

Loan payable2023000

James Taylor, Capital300104000

James Taylor, Drawings301600

Tailoring revenue3408160

Rent expense3511200

Fuel expense352200

Electricity expense353760

Postage expense35420

Wages expense3552200

Haberdashery supplies expense356620

$115660$115660

Week 3 Discussion Problems

Documents

Transcript of Week 3 Discussion Problems