1101AFE Accounting Principles
Practice Set Assignment
Semester 2 2015
Background and Facts
Ryan Captain is the owner of CaptainDJ Sounds, a specialty sound system business he started several years ago. The business is GST-registered.
Ryan Captain operates the business himself and employs one person full-time to assist him. Ryan started by providing DJ services to both clubs and private parties and then diversified into selling sound systems and consulting services. Whilst selling sound systems and consulting services are now the primary generators of revenue, Ryan still when time allows provides DJ services at private parties. Hence, the business generates its revenue by:
• Selling 3 types of sound systems that are purchased from manufacturers.
• Providing consulting services to private clients for designing home audio systems.
• DJing services at private parties
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CaptainDJ Sounds uses a perpetual inventory system, and uses FIFO (First In First Out).
The business is operated from a commercial building that the business purchased three years ago.
Ryan has a variety of clients with whom he has built up a strong relationship. He offers them terms of 30 days. Ryan submits his Business Activity Statements for GST monthly to the Australia Taxation Office on an accruals basis.
Currently, the business uses a manual accounting system but plans to test a MYOB accounting system in September.
The business, CaptainDJ Sounds, uses the following specialised and general journals to record business transactions.
• Sales Journal – to record all invoices issued for sales of inventory
• Sales Returns Journal – to record all credit notes issued for returned inventory
• Purchases Journal – to record all credit purchases of inventory
• Cash Receipts Journal – to record all cash received
• Cash Payments Journal – to record all cash payments
• General Journal – to record all other transactions
CaptainDJ Sounds uses a general ledger in the form of a 4 column running balance (as described on page 78Exhibit 2-13 of Custom Text 3rd Ed). An Accounts Receivable and Accounts Payable subsidiary ledger is also used in this format.
Financial Statements are prepared at the end of each month. The accounts are closed off at the end of each month.
Chart of Accounts
Account Number Account Name Opening Balance
110 Cash at Bank 13,692
120 Accounts receivable 32,942
121 Allowance for Doubtful Debts 1,136
130 Prepaid Insurance
150 Office Supplies 1,150
160 Inventory 66,550
170 Office Equipment 14,180
171 Accumulated Depreciation – Office Equipment 6,395
181 Accumulated Depreciation – Vehicle
190 Premises 380,000
191 Accumulated Depreciation – Premises 38,000
200 Accounts Payable 36,200
210 Unearned Revenue
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220 Wages Payable 743
230 GST Clearing 2,141
240 PAYG Payable 3,149
250 Superannuation Payable 869
280 Bank Loan – Non-current 350,000
300 Capital 69,881
350 Income Summary
410 Sales Revenue
411 Sales Returns and Allowance
412 Discount Allowed
413 Discount Received
415 Design Consultation Fees
420 Bank Interest Revenue
500 Cost of Goods Sold
510 Advertising Expense
512 Bad and doubtful debts expense
515 Bank Charges
520 Depreciation Expense – Office Equipment
521 Depreciation expense – Vehicle
522 Depreciation Expense – Premises
530 Insurance Expense
531 Interest Expense
540 Office Supplies Expense
570 Superannuation expense
580 Telephone and Internet Expense
590 Wages Expense
All account balances at 31st July are normal in nature.
The bank reconciliation for 31 July is shown below.
Balance as per bank Statement 14,267
Add deposits not yet credited 1,100
Less Unpresented cheques
Balance as per Cash at Bank Ledger Account 13,692
Accounts Receivable Subsidiary Ledger
As at 1 August
R. Meddles 2,566
Hard Rocks 9,500
Max Madon 15,455
Accounts Payable Subsidiary Ledger
As at 1 August
Sounds Pty Ltd 31,500
Blues Brothers Inc 2,552
Mullim Pty Ltd 2,148
Inventory on Hand
As at 1 August
Units on Hand Cost per Unit Total
Yamaha Micros 50 476 23,800
Samson Home Theatre 40 750 30,000
Blanport Blu Ray 25 510 12,750
The following transactions relate to the operations of CaptainDJ Sounds during August:
Note: All amounts are GST-inclusive unless otherwise stated.
Round all final GST and final net of GST amounts to nearest cent (eg. 29.8451 = 29.85)
Credit sales are made on credit terms of 2/10, n30
Trans-action # Date Details
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1. 1 August 1 Paid insurance for 6 months in advance – $3,300 – by BPAY
2. 2 August 1 Paid Blues Brothers Inc in full for outstanding account balance (July purchase) taking advantage of the terms 3/10, n30– chq 72
3. August 3 Sold 20 Yamaha Micros sound systems for cash – $20,900
4. 4 August 3 Purchased inventory on credit from Mullim Pty Ltd – $17,160
30 Blanport Blu Ray sound systems.
5. August 4 Received amount owed by Max Madon for July outstanding amount less applicable discounts.
6. 5 August 5 Purchased office supplies for $440 – chq 73 (use a/c 150 Office Supplies)
7. August 5 Invoiced R. Meddles for designs completed for a home audio system, Inv 4562 for $7,700.
8. 6 August 7 Received partial payment from S.Pronto for July – $2,200
No discounts were applicable.
9. 7 August 8 Sold 40 Blanport Blu Ray Systems to Max Madon on credit for $46,200 – Inv 4563
10. 8 August 8 Purchased inventory on credit from Sounds Pty Ltd – $36,014 (incl GST) –
30 Samson Home Theatre systems at $770 each (excl GST)
20 Yamaha Micros systems at $482 each (excl GST)
11. August 9 Received amount owed by Hard Rocks for July invoices less applicable discount.
12. 9 August 10 Received payment from R. Meddles for July balance – $2,566. They took advantage of the available discount.
13. 1 August 10 Paid fortnightly wages of $1,758 – chq 74
($1,015 relates to August wages; $743 relates to the wages accrued for July)
PAYG deducted from these wages amounted to $220.
14. 1 August 12 Paid Gold Coast Bulletin for advertising for August $375– chq 75
15. 1 August 15 Purchased vehicle for $22,500 from Discount Vans – chq 76. The van has a useful life of 10 years with $1,000 residual value.
16. 1 August 15 Sold 55 Samson Home Theatre systems Hard Rocks for $90,750, Inv 4564.
17. 1 August 16 Invoiced S.Pronto for the designs of an audio home theatre system, Inv 4565 for $3,452.
18. 1 August 16 Purchased a new HD TV for private use at home for Ryan for $3,456 – chq 77.
19. August 17 Hard Rocks returned 2 Samson Home Theatre systems sent in excess of order. CRN 007 was issued. These sound systems were from the inventory that cost $750.
20. 1 August 20 Paid amount owing to Sounds Ptd Ltd – $67,514 chq 78
No discounts were applicable.
21. August 22 Paid Mullim Pty Ltd $2,148 as payment for July invoice – chq 79. No discounts were applicable.
22. August 22 Received invoice and paid for advertising in Sounds of Silence Magazine, $495 – chq 80
23. August 24 Paid fortnightly wages of $1,758 – chq 81
PAYG tax deducted from theses wages amounted to $220.
24. August 24 Paid PAYG tax payable for July of $3,149 with chq 82
25. August 24 Paid superannuation contributions owing from July of $869 – chq 83
26. August 26 Invoiced R. Meddles for further home audio systems work with invoice totalling $15,950, Inv 4566.
Design work – $15,950 incl GST
27. August 26 Purchased systems from Mullim Pty Ltd for $34,419
30 Blanport Blu Ray systems at $525 each
20 Samson Home Theatre system at $777 each
28. August 26 Sold 33 Yamaha Micros systems for cash – $31,350 excl GST
29. August 29 Paid the monthly telephone account for $622 using chq 84
30. August 29 Received remaining payment for S.Pronto for July invoice – $3,221.
31. August 30 Received payment in advance from S.Pronto for DJing services to be provided in September – $1,650 (GST incl).
32. August 30 Ryan lodged his quarterly Business Activity Statement to the Australian Taxation Office for the June quarter together with the GST payable of $2,141 by BPAY
33. August 31 Received interest on bank deposit – $110
This information was obtained by inspecting the Bank Statement
34. August 31 Made monthly repayment on bank loan of $5,300. The interest component of the loan is $2,755.
This information was obtained by inspecting the Bank Statement.
Account Name: CaptainDJ Sounds BSB: 026-391
Account number: 5421-6491
Date Particulars Debit Credit Balance
August 1 Balance brought forward 14267.00Cr
2 38 360.00 13907.00Cr
3 1100.00 15007.00Cr
4 15145.90 51052.90Cr
BPay 3300.00 47752.90Cr
72 2475.44 45277.46Cr
7 2200.00 47477.46Cr
11 73 440.00 47037.46Cr
74 1758.00 45279.46Cr
51 1290.00 43989.46Cr
12 2514.68 55814.14Cr
20 76 22500.00 33314.14Cr
77 3456.00 29858.14Cr
23 78 67514.00 37655.86Dr
79 2148.00 39803.86Dr
26 34485.00 5318.86Dr
29 3221.00 2097.86Dr
81 1758.00 3855.86Dr
30 Loan 5300.00 9155.86Dr
31 Interest 110.00 9045.86Dr
Bank fees 40.00 9085.86Dr
80 495.00 9580.86Dr
Note: Cheque No. 71 was destroyed due to coffee being spilled on it.
Instructions for Completion of Practice Set
A. Open all general ledger accounts by inserting the opening balances at 1 August as shown in the Chart of Accounts on Page 2. For example the balance of account 110 Cash at Bank is $13,692 Dr, write “Opening Balance” in ‘Details’ column and place “$13,692” in the ‘Debit’ in the balance column.
B. Open all subsidiary ledger accounts for accounts receivable and accounts payable by inserting the opening balances as at 1 August as shown in the schedule of accounts receivable and accounts payable on Page 3. Insert the opening inventory balances into the inventory cards.
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Note: For the general ledger, accounts receivable subsidiary ledger and accounts payable subsidiary ledgers, all accounts have normal balances.
C. Record the transactions for August noted on pages 4 to 5 in the appropriate journals (for general journals explanations/narrations are not required). The journals are provided in the Excel spreadsheet with the file name “Pro Formas CaptainDJ Sound.xlsx”
D. All receipts received by direct credit or EFT are recorded in the Cash Receipts Journal on the day they are received.
E. Payments made by EFT or BPAY are recorded in the Cash Payment journal on the day the payment is made.
F. Use the treatment for Sales Discounts and Discount Received as illustrated in Chapter 7 Accounting Information Systems in the Cash Receipts and Cash Payments Journal.
G. Post entries daily to the accounts receivable and accounts payable subsidiary ledgers
and inventory cards. Post entries daily from the general journal
Note: For posting reference purposes, use the journal page names and numbers. For example, when posting from the sales journal the reference will be “SJ1”.
H. Prepare a bank reconciliation statement as at 31 August. Where possible clear the outstanding items from the July bank reconciliation and include any uncleared items in the August bank reconciliation. Prepare journal entries for any cashbook adjustments and post to the cash receipts and/or cash payments journal. Note: Cheque No. 71 was destroyed due to coffee being spilled on it.
I. Total all columns of the special journals. Post from the special journals to the general ledger.
J. Prepare schedules of Accounts Receivable and Accounts Payable. Check that the total of the Schedule of Accounts Receivable equals the Accounts Receivable Control account in the general ledger and that the Schedule of Accounts Payable equals the Accounts Payable account in the general ledger.
K. Using the worksheet provided in the excel spreadsheet, prepare an unadjusted Trial Balance as at 31 August.
L. Using the information in 1-7 below, record the necessary adjusting journal entries at 31 August in the general journal. Post these to the general ledger.
M. Record these adjustments in the adjustments column of the worksheet.
N. Complete the worksheet.
Adjusting entry information as at 31 August
1. Unearned Revenue
On August 30, Ryan received payment from S. Pronto for DJing services to be provided in September as a noted in Transaction # 31.
Ryan paid 6 months of insurance as noted in transaction #1 on August 1.
• Office equipment is depreciated using the straight-line method. Existing office equipment has a useful life of 5 years with a residual value of $1,100.
• On August 15, Ryan purchased a vehicle. It has a useful life of 10 years and a residual value of $1,000. The vehicle is depreciated using the straight-line method (calculate depreciation on a day-basis).
• Premises were purchased 3 years ago. They are depreciated at 4% per annum using the straight-line method.
• Note: depreciation is calculated for the month of August only. Round all final depreciation amounts to the nearest dollar. Depreciation commences the day after installation on the asset.
4. Accrued Wages
Fortnightly wages of $1,758 were last paid on 24th August (for the full working fortnight up to and including 24th August).
Superannuation contributions accrued for August total $871.
6. Office Supplies
A stocktake of office supplies was performed on August 31. It was noted that $650 of supplies remain.
7. Bad Debts
An assessment of bad and doubtful debts at August 31 showed a marked increase in the number of accounts falling into this category. Ryan has decided to increase the Allowance for Doubtful Debts to 5% of the accounts receivable balance at August 31.
Instructions for Completion of Practice Set continued
O. Record all closing entries in the general journal and post them to the general ledger.
P. Prepare a Post-closing Trial Balance as at 31 August
Q. Prepare the Statement of Comprehensive Income (Classified), Statement of Changes in Equity, and Statement of Financial Position (Classified).
Guidelines for the Timing of Completion
? For Seminar 1 in Week 7 Students should read the Practice Set and all instructions carefully and bring all pages to the Workshop.
? For Seminar 2 in Week 8 students should have completed Instructions A and B and have commenced recording and posting transactions (Instructions C, D, E, F and G).
? For Seminar 3 in Week 9 Instructions C to J should been completed.
? For Seminar 4 in Week 10 the Bank Reconciliation and any other outstanding items should be completed.
? After the Seminars have ended in Week 10 students should follow instructions K to Q in order to finish the Practice set by the due date as noted in the course profile.
Note: Check Figures to help complete the Practice Set Assignment will be released at the end of Week 8.