Note: This assignment integrates concepts covered in Modules 1 through 7 inclusive. It is worth 15 marks.
Prepare the answers to these assignment questions in Word and save them as one document on your hard drive. See “Submit assignments and quizzes” under the How To tab for the recommended format and filename. When your file is complete and you are ready to submit it for marking, click the link to the drop box for this assignment in the navigation pane.
Question 1 (10 marks)
It is May 1, 2008, the first business day of the month, and you have just been hired as the accountant for Dista Co., which operates with monthly accounting periods. For simplicity, assume that Dista Co. sells one product. All of the company's accounting work has been completed through the end of April, 2008. The post-closing trial balance as at April 30, 2008 follows. The company’s fiscal year end is May 31.
DISTA CO.
You have determined that Dista Co. uses the moving weighted average cost flow assumption under a perpetual system to account for merchandise inventory and that the terms of all credit sales are 2/10, n/30.
Merchandise sells for $50.00 per unit.
During your first month on the job, the following events occurred:
Post-closing Trial Balance April 30, 2008
Cash 108,859.00
Accounts receivable1 12,348.00
Allowance for doubtful accounts 940.00
Merchandise inventory3 19,470.00
Office supplies 1,300.00
Store supplies 8,600.00
Prepaid insurance 6,400.00
Interest receivable5 35.00
Office equipment4 28,740.00
Accumulated amortization,
office equipment 19,394.00
Store equipment4 79,500.00
Accumulated amortization,
store equipment 20,566.00
Note receivable5 14,000.00
Accounts payable2 47,960.00
Rona Dista, capital 190,392.00
279,252.00 279,252.00
1 See the Accounts receivable subsidiary ledger under Sub-ledgers (To view the content from this link you must go on-line.) for details regarding customer balances.
2 See the Accounts payable subsidiary ledger under Sub-ledgers (To view the content from this link you must go on-line.) for details regarding creditor balances.
3 See the Merchandise inventory subsidiary ledger under Sub-ledgers (To view the content from this link you must go on-line.) for details of inventory holdings.
4 See the Furniture and equipment subsidiary ledger under Sub-ledgers (To view the content from this link you must go on-line.) for detailed information.
5 This is a 6% note due April 15, 2013, with payments of $270.66 receivable on the 15th of each month.
Refer to the Note Receivable Amortization Schedule for details.
May 1 Issued cheque #3410 to S & R Management Co. in payment of the May rent, $3,700. Use two lines to record the rent component of the transaction. Charge 75% of the rent to Rent expense, selling space and the balance to Rent expense, office space.
2 Sold 300 units of merchandise on credit to Krista Company, invoice #8785.
2 Issued a credit memorandum to Choi Corp. for 5 units of defective merchandise sold on April 26; the returns were discarded and not restored to inventory.
3 Issued cheque #3411 to Meld Corp. regarding the April 17 purchase.
5 Purchased on credit from Avdex Supply Co.: 340 units of merchandise at $41.00 per unit; store supplies, $2,000; and office supplies, $800. Invoice dated May 5, terms 1/10, n/30.
6 Collected the amount owing from Choi Corp.
6 Avdex Supply Co. issued a memorandum regarding the return of 45 defective units of merchandise purchased on May 5.
Required
Note:
Ensure that all entries are appropriately cross-referenced.
You can use the working papers provided on this link.
Ignore GST and PST.
1. Transcribe the April 30, 2008 balances from the post-closing trial balance to the General Ledger.
2. Enter the May transactions listed above in the General Journal.
7 Sold 415 units to Dunvegan Inc. for cash.
9 Sold store supplies to the merchant next door at cost for cash, $6,850.
10 Purchased office furniture on credit from Avdex Supply Co., invoice dated May 10, terms n/15,
$41,000. The office furniture is expected to be replaced in 6 years and then sold for about
$3,000. Dista Co. will use the straight-line method calculated to the nearest whole month when amortizing this asset.
11 Received payment from Krista Company for the May 2 sale.
11 Received 600 units of merchandise and an invoice dated May 11 totalling $25,800.00, terms 1/5, n/15, from Xylo, Inc.
12 Received a $1,500 credit memorandum from Avdex Supply Co. for defective office furniture received on May 10 and returned for credit.
14 Issued cheque #3412 to NASD Products to pay for the merchandise received on April 29.
15 Collected the interest and principal regarding the Note Receivable (Hint: Refer to the amortization schedule).
15 Issued cheque #3413, payable to Payroll, in payment of sales salaries, $2,000 and office salaries, $4,000. Cashed the cheque and paid the employees.
15 Issued cheque #3414 to Avdex Supply to pay for the May 5 purchase.
16 Sold 490 units of merchandise on credit to Krista Company, invoice #8786.
17 Received 600 units of merchandise and an invoice dated May 17, terms 2/10, n/30, from Meld Corp., $40.50 cost per unit.
19 Issued cheque #3415 to Avdex Supply Co. in payment of its May 10 invoice.
19 Issued cheque #3416 to Xylo, Inc. in payment of its May 11 invoice.
22 Sold 50 units of merchandise to Lloyd Services, invoice #8787.
23 Issued cheque #3417 to Meld Corp. in payment of its May 17 invoice.
25 Determined that the customer account belonging to Lumbar Inc. was uncollectible and wrote it off.
25 Received 230 units of merchandise and an invoice dated May 25, terms 1/15, n/30, from NASD Products, $8,970 total cost.
26 Received payment from Krista Company regarding the May 16 sale.
26 Issued cheque #3418 to Trinity Power in payment of the May utility bill, $3,600.
26 The owner, Rona Dista, withdrew $2,000 from the business for personal use, using cheque
#3419.
31 Issued cheque #3420, payable to Payroll, in payment of sales salaries, $2,000, and office salaries, $4,000. Cashed the cheque and paid the employees.
3. Post the entries to the General Ledger. For entries that involve accounts receivable, accounts payable, merchandise inventory, or furniture and equipment, update the respective subsidiary ledger accounts as well.
4. Prepare an unadjusted trial balance in the provided work sheet form and complete the work sheet using the following additional information:
a. The balance in Prepaid insurance represents 4 months of insurance for coverage that commenced on May 1, 2008.
b. A count of the store supplies showed a balance on hand on May 31 of $140.
c. Office supplies used during May totalled $1,950.
d. Calculate amortization by referring to the property, plant, and equipment subsidiary ledger.
(Round to the nearest whole dollar.)
e. Actual count of ending merchandise inventory was determined to be $35,420.85 — the difference between this amount and your inventory records is due to shrinkage.
f. Calculate accrued interest on the note receivable. (Hint: Refer to the Note Receivable Amortization Schedule).
g. Dista Co. received the following bank statement for May. Last month’s bank reconciliation showed no reconciling items.
Note:
NSF is from Choi Corp. regarding IN#8776 dated April 2, 2008.
h. Management estimates uncollectible accounts receivable based on the following rates of uncollectibility applied to outstanding accounts:
Bank Statement To: Dista Co.
Piggy Bank
Cheques/Charges Deposits/Credits Balance
Apr 30/08 108,859.00
CH#3410 3-May 3,700.00 105,159.00
6-May 10,778.04 115,937.04
NSF 7-May 7,648.64 7-May 20,750.00 129,038.40
9-May 68,500.00 197,538.40
11-May 14,700.00 212,238.40
CH#3412 15-May 7,920.00 15-May 270.66 204,589.06
CH#3413 15-May 6,000.00 198,589.06
CH#3416 20-May 25,800.00 172,789.06
CH#3417 24-May 23,814.00 148,975.06
CH#3419 26-May 2,000.00 26-May 24,010.00 170,985.06
CH#3415 28-May 39,500.00 131,485.06
CH#3411 31-May 39,960.00 91,525.06
SC 31-May 217.72 91,307.34
1-30 days 31-60 days
5. Prepare and post adjusting entries and entries resulting from the bank reconciliation (omit explanations).
6. Prepare the adjusted trial balance column on the work sheet.
7. Prepare a May classified multiple-step income statement, a May statement of owner’s equity, and a May 31 classified balance sheet.
8. Prepare and post the closing entries (omit explanations).
9. Prepare a post-closing trial balance.
Submit the following reports to your marker for assessment (10 marks total):
a. General journal (3 marks) b. General ledger (1 mark) c. Work sheet (0.5 mark)
d. A classified multiple-step income statement for the month ending May 31 (1.5 marks), a statement of owner's equity for the month ending May 31 (0.5 mark), and a classified balance sheet as at May 31 (1.5 marks)
e. Post-closing trial balance (0.5 mark)
f. The Accounts receivable (0.25 mark), Accounts payable (0.25 mark), and Inventory (0.5 mark) sub-ledger accounts, including those that have a nil balance.
g. May 31 bank reconciliation (0.5 mark)
Question 2 (5 marks)
You have the May 31, 2008 financial statements completed and want to understand more about the financial performance of Dista Co. This is a new job for you and there is a lot to learn. You anticipate that Rona, your new boss, will have questions about the year-end results.
Calculate any three ratios that will help you to better understand the company and that you believe will be informative to the company owner.
a. For each ratio, interpret the meaning of the results you calculated and write a brief explanation of what the results tell you about Dista. In your analysis, you may refer to any other source (such as
information in the textbook, online sources, or cases you are familiar with). (3.75 marks — 1.25 mark per ratio)
b. Select one of the ratios and explain how the ratio is affected by the accounting policies Dista selected.
(1.25 marks)
Not yet due past due past due Greater than 61 days past due
2% 9% 18% 60%