Question

In: Accounting

Scenario: On 1 Oct 2018, Andrew Brown opened Nundle Services, a small business offering maintenance services...

Scenario:

On 1 Oct 2018, Andrew Brown opened Nundle Services, a small business offering maintenance services in New South Wales. During the month of October, the business incurred the following transactions:

2 Oct, Andrew invested $50,000 cash in the business, which is organised as a sole trader.
3 Oct, got a 5 year loan for $30,000 from the ANZ bank, interest is 5% pa.
4 Oct, purchased and paid for equipment worth $51,000. Monthly depreciation will be $850.
5 Oct, purchased supplies for $6,500 on credit.
8 Oct, paid Oct office rent of $7,200.
10 Oct, Brown withdrew $2,000 for personal purposes.
17 Oct, paid an invoice of $4,500 for advertising
25 Oct, paid one year of insurance for $5,600
Additional information at 31 Oct:

Supplies on hand was $3,100
Services revenue of $22,500 must be accrued
Monthly payroll is $11,500 and paid once a month on Friday after the month ended. 31 Oct 2018 was on Wednesday.
Some customers advanced $10,500 for maintenance services to be provided next month but this amount hasn’t been recorded.

Requirements:

- Provide journal entries for all transactions that occurred during October 2018.
- Open T-accounts and post all journal entries to the T-accounts. Total all of the T-accounts to determine their balances at the end of the month.

- Provide your handwritten solution – scan or use your phone to copy and paste its image into your assignment. You can use a free scanning app such as Camscanner, OfficeLens, or Google Drive.
- Based on balances from the T-accounts, prepare the trial balance by using an Excel spreadsheet. Present your answers in a normal view, showing columns and rows.
- What are temporary and permanent accounts? From your trial balance, choose four permanent and four temporary accounts.
- From your trial balance, choose two accounts with normal debit balances and two accounts with normal credit balances.
- What are adjusting entries? Why do we have to do adjusting entries? Provide all adjusting entries for Nundle Services in October.
- Using your trial balance in the preceding question and Excel spreadsheet, prepare the ten column worksheet for the month ended 31 October. In the spreadsheet, you are required to have a data section separated from a report section. Use an IF function for Profit or Loss. Present your answers in both normal and formula views, showing columns and rows.
- Using the spreadsheet, prepare three financial reports. Present your answers in both normal and formula views.
- Calculate and evaluate the firm’s current and debt ratios.

Solutions

Expert Solution

Journal entries for October, 2018
Date Account Titles Debit Credit
2 Oct. 18 Cash $50,000
      Capital $50,000
(Being capital introduced in business)
3 Oct. 18 Cash $30,000
      ANZ Bank Loan $30,000
(Being loan taken)
4 Oct. 18 Equipment $51,000
       Cash $51,000
(Being equipment purchased)
5 Oct. 18 Supplies $6,500
       Accounts Payable $6,500
8 Oct. 18 Office rent $7,200
       Cash $7,200

(Being rent paid)

10 Oct. 18 Drawings $2,000
       Cash $2,000
(Being drawings received)
17 Oct. 18 Advertising $4,500
       Cash $4,500
(Being advertising expenses paid)
25 Oct. 18 Insurance expenses $467
Prepaid insurance $5,133
       Cash $5,600
(Being insurance expenses paid)
Adjustment Entries:
31 Oct. 18 Interest expenses $125
        Interest payable $125
($30,000 x 5% x 1 month/12 months)
31 Oct. 18 Depreciation $850
        Equipment $850
31 Oct. 18 Supplies Expenses $3,400
        Supplies $3,400
($6,500 - $3,100)
31 Oct. 18 Accounts Receivable $22,500
        Revenue $22,500
31 Oct. 18 Salary $11,500
         Salary payable $11,500
31 Oct. 18 Cash $10,500
       Advance from Customers $10,500

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