Question 1

Income statement for the financial year ended August 31for Fiona Frolickers is as follows:
2015
Sales
Cost of goods sold
Gross Profit
Selling expense
Administrative expenses
Finance Expenses
Income tax expense
Profit

2014
$600,000
390,000
210,000
70,000
75,000
8,000
25,000
32,000

$550,000
278,000
272,000
79,000
70,000
4,000
26,000
93,000

Required:
A.

Perform horizontal analysis on the income statement. Round to closest

percent (e.g 36.5% to 37%).

B.

Comment on the significant changes disclosed by the comparative

statement of comprehensive income.

C.

Prepare a Statement of Retained Earnings for the year ended August 31,
2015. (Retained earnings at September 1, 2014 were $69,000, dividends
declared and paid during the financial year were $28,000.

D.

Explain how profits for the year ended August 31, 2014 were $93,000
yet Retained Earnings at September 1, 2014 were only $69,000.

Question 2
Carin owns and operates the Carin Consulting business. On August 1, 2015 her ledger
showed the following account balances. (Ignore GST)
Accounts with debit balances
Cash
Accounts Receivable
Inventory
Supplies
Prepaid Rent
Equipment
Land
Cost of Goods Sold
Rent Expense
Supplies Expense
Electricity Expense
Advertising Expense

Accounts with credit balances

20,000 Accumulated Depreciation
Equip
36,000 Accounts Payable
18,000 Unearned Revenue
1,000 Electricity Payable
2,000 Mortgage Payable
10,000 Contributed Capital
70,000 Retained Earnings
0 Dividends
0 Consulting Service Revenue
0 Sales Revenue
0 Interest Revenue
0
157,000

1,000
14,000
0
2,000
80,000
46,000
14,000
0
0
0
0
157,000

The following transactions and adjustments occurred during August 2015:

1.

The owners contributed $2,000 cash and equipment valued at $5000 to the business.

2.

Received $3,000 cash from customers who had previously been billed (invoiced)
for services performed during July.

3.

Billed (invoiced) a client $9,000 for consulting services performed during August.

4.

Carried out consulting services for a customer and received $6,000 cash.

5.

Purchased supplies on credit $7,000. The supplies purchased were recorded as an asset.

6.

Received $1,000 interest earned during August.

7.

Paid $3,000 to creditor (Accounts Payable) for goods purchased in July.

8.

Paid $6,000 for rent for the next three months. The business recorded the rent as an asset.

9.

Received an invoice for $2,000 relating to Augusts advertising expense to be paid in

September. The business recorded the advertising as an
expense.

10.

Sold inventory on credit to a customer for $4,000. The inventory cost $2,000 and
was recorded using the perpetual inventory system.

11.

Distributed $3,000 in dividends (out of Retained Earnings) to owners.

12.

Received electricity bill for the electricity used in August $8,000 (did not pay it).
Recorded the electricity as an expense.

13.

Purchased land $260,000 by arranging a mortgage with the bank

14.

Received $1,000 cash for services to be performed in September. The transaction

was recorded as a liability.

Required
A. Record the above transactions/adjustments in a general journal using only the
ledger accounts given.
B. Post to the ledger, (remembering first to enter the opening balances).

Question 3
For each of the following independent situations and from the information below record
the adjusting entry (and only the adjusting entry do not record the original
transaction or opening balance) in the General Journal, being as precise with your account
titles as possible, e.g. not using supplies but supplies expense or supplies on hand.
Please ignore GST.
Required: Record the Adjusting Entries
i.

When supplies are purchased by Andrea they were recorded as an asset.

Calculations after an end of period stock-take revealed a closing stock (balance) of
$5,000. There was an opening balance of $3,000 and during the period $8,000 of
supplies were purchased. Record the adjusting entry.

ii.

At Ian Industries salaries are paid and recorded weekly at the end of the week late on
a Saturday evening for all work performed up to and including Saturday evening.
The weekly salary bill is $36,000 for a six-day working week (Mon Sat). Ians
accounting period ends on Tuesday evening. Record the adjusting entry.

iii.

On January 1, 2015 Ann Arbours purchased a new truck. The truck cost $100,000. It
is expected to have a useful life of eleven years and a scrap or residual value of $22,120.
The company calculates and records depreciation each month on a straight-line basis.
Record the adjusting entry for the month of January.

iv.

Rent was received in advance on July 1, 2015. It was paid in advance for the six
months commencing on July 1, 2015 and recorded as revenue. Monthly rent is $2,000.
Record the adjusting entry for the year ending August 31, 2015 for the landowner (the
property owner, the person receiving the rent).

v.

Ella Auditors is conducting the audit on Swan Productions. It is normal practice not
bill or invoice the client until the audit is completed. By the end of the financial year 43
hours have been spent on the audit. The average rate is $370 per hour. Record the
adjusting entry for Ella Auditors.

vi.

Raechel pays her insurance of $24,000 annually in early September. The insurance
policy covers all her compressors from 12.01 a.m. on September 1. Insurance is
recorded as an expense when paid and the financial year ends on December 31. Record
Raechels adjusting entry for the six months ended December 31.

vii.

Adriel Construction received $500,000 in August 2015 for a new building project and
recorded this initial cash receipt as a liability. The project is 75% complete at
financial year-end. Record the adjusting entry for financial year ending June 30, 2016
for Adriel.

viii.

A tennis club offered a special rate for upfront annual memberships at the start of the
season. If patrons paid their 12 months fees in advance they only had to pay $1,200.
The tennis club recorded the fees as Membership Revenue, and 300 people signed up.
At the end of the financial year the tennis club had been operational for 3 months.
Record the adjusting entry for the tennis club.

ix.

A customer invested $40,000 in a term deposit at Murray River Bank on March 1, 2015.
Interest is paid after one year and interest rates are 6%. Record the adjusting entry for
Murray River Bank on 30 September 2015 when their financial year ends.

x.

Nelson owns a cruise ship and leased it for 8 years receiving $9.6 million (the entire
lease amount) at the commencement of the lease. Nelson recorded the receipt of the
money as Unearned Rent Revenue. Record the adjusting entry when his first
financial year ends two months after the lease commenced.

xi.

Electricity expenses average $2,400 per year. The Electricity meter was last read
exactly three months ago. The bill was received 2 months ago and paid last month. The
financial year ends today. Record the adjusting entry for the three months ended today.

xii.

On 1 March, Ryan Rockclimbing paid $1,200 to the local rockclimbing magazine for
a one page advertisement for Ryans rockclimbing skills courses. The advertisements
will run each month for the next 12 months. Ryan initially recorded the advertising as a
prepayment (asset). Record the adjusting entry for Ryan for the month of March.

xiii.

When office photocopying paper is purchased it is recorded as an expense. An end of

period stock-take (count) revealed a closing balance of $3,000. There was an
opening balance of $1,000 and during the period $5,000 of photocopying paper was
purchased. Record the adjusting entry.

xiv.

James Limited received rent on the first day of November 2014, a total of $70,200
in advance for twelve months commencing on that day and records it as revenue.
Record the adjusting entry for the year ending June 30, 2015 for James Limited.

xv.

On 1 September 2013, Stephen Services purchased a new digital SLR camera for
$18,500. Stephen expects the camera to have a useful life of 6 years with a residual
value of $500. The camera is depreciated on a straight-line basis. Record the adjusting
entry for depreciation for the financial year ending 30 June 2016.