Question

Weez Ltd is a GST registered retailer of widgets with monthly accounting periods. The following is the unadjusted trial balance at 28 February 2018, the end of the financial year. Important: the balances in the temporary accounts reflect February events only. No other account names are available in the General Ledger. Additional information follows the trial balance.

Weez Ltd

Unadjusted Trial Balance

28 February 2018

Account Name	DR Balance	Account Name	CR Balance
Cash	$37,000	Acc. Depreciation, Equipment	$1,200
Accounts Receivable	20,000	Accounts Payable	12,400
Allowance for Doubtful Accts	500	Warranty Payable	28,000
Interest Receivable	1,000	GST Clearing	2,000
Prepaid Rent	20,250	Salaries Payable	0
Inventory	50,000	PAYE Payable	0
Investment in Debentures	100,000	Income Tax Payable	0
Computer Equipment	12,000	Retained Earnings	8,650
Dividends Declared	5,000	Foreign Currency Reserve	12,000
Salaries Expense	28,800	Share Capital	90,000
Cost of Goods Sold	0	Gain on Sale of Building	16,000
Sales Returns & Allowances	200	Sales Revenue	120,000
Sales Discounts	800	Interest Revenue	0
Bad Debt Expense	0
Other Operating Expenses	4,200
Interest Expense	500
Warranty Expense	0
Rent Expense	0
Depreciation Expense, Equipment	0
Income Tax Expense	0
OCI Loss on Foreign Currency	____10,000		_________
Total	$290,250	Total	$290,250

Additional Information:

1. The recoverable amount of the $20,000 of accounts receivable shown on the unadjusted trial balance is $18,000.
2. The investment in debentures pay interest quarterly at a 6% annual rate. The next interest payment date is 1 March 2018.
3. In October 2017, Weez Ltd prepaid its store rent for the entire year, effective the beginning of November 2017. The yearly rent is $31,050, including GST.
4. The computer equipment has a useful life of five years, a residual value of $1,000, and is being depreciated using the declining balance method at 2X the straight-line rate. The balance in Accumulated Depreciation represents three months of depreciation. (Weez Ltd calculates a 12 month block of depreciation and then apportions the expense monthly.)
5. Dividends of $5,000 were declared and paid to Weez Ltd shareholders in February.
6. The February payroll totals $32,000 for 20 days of work for that month. The 20 days include two days worked the end of February that will be paid in March. Included in the $32,000 is $8,000 of PAYE and other withholdings.
7. Weez Ltd uses the periodic inventory system and debits Inventory for all of its merchandise purchases. It then counts the inventory remaining at the end of each month and applies FIFO in order to calculate Cost of Goods Sold for the month. The $50,000 balance of Inventory on the trial balance (shown net of GST) consists of the following:

• Beginning inventory (as at 1 February 2018) of 2,000 widgets at $2 each;
• 6,000 units purchased at $3 each on 10 February;
• 10,000 units purchased at $2.50 each on 16 February;
• 1,000 units purchased at $3 each on 25 February.

An inventory count on 28 February showed that 1,500 widgets remained on hand.

8. The inventory count did not include the items shipped as the result of a 27 February sale of 500 widgets at $11.50 each, including GST, terms 2/10 net 30. Weez Ltd shipped the widgets on 28 February, FOB shipping point, to arrive at the buyer’s place of business in early March. Weez Ltd has not yet recorded the sale.
9. Weez Ltd offers a one year warranty and estimates that as at 28 February, the amount owing for the next 12 months is $30,000. GST does not apply to warranty work.
10. Income tax payable is estimated at 30% of pre-tax profit.

Required:

Prepare a Statement of Comprehensive Income for Weez Ltd for the month ending 28 February 2018

Answer 1

Weez Ltd.
Adjusting Journal Entries
28-Feb-18
Account Title	Debit	Credit
i.Bad debt expense	2500
Allowance for Doubtful Accts		2500
(Additional allowance created to reflect actual receivables)
ii.Interest Receivable	500
Interest Revenue		500
(Feb.2018 Interest on debentures---100000*6%*1/12)
iii.Rent Expense	2588
Prepaid Rent		2250
GST clearing		338
(31050/12)-(20250/9)=338--GST on rent
iv.Depreciation Expense, Equipment	400
Acc. Depreciation, Equipment		400
(12000*40%/12)
v.Retained Earnings	5000
Dividends Declared		5000
(Dividends declared & paid)
vi.Salaries Expense	32000
Salaries Payable		24000
PAYE Payable		8000
(accrual of Feb 2018 payroll)
vii.Cost of Goods Sold	45750
Inventory		45750
(50000-(1000*3)-(500*2.50)--FIFO
viii.Accounts Receivable(500*11.50)	5750
Sales Revenue		5000
GST clearing(5750/115*15)		750
Cost of Goods Sold	1250
Inventory		1250
(500*2.50)
ix. Warranty expense	2000
Warranty Payable		2000
(30000-28000)
Income Tax Expense	6154
Income Tax Payable		6154
(as per income statement)

Trial Balance
28-Feb-18	Unadj.				Unadj.
Account Name	Debit	Adj.	Adj. Bal.	Account Name	Credit	Adj.	Adj. Bal.
Cash	37000		37000	Acc. Depreciation, Equipment	1200	400	1600
Accounts Receivable	20,000	5,750	25750	Accounts Payable	12,400		12400
Allowance for Doubtful Accts	500		500	Allowance for Doubtful Accts		2500	2500
Interest Receivable	1,000	500	1500	Warranty Payable	28,000	2,000	30000
Prepaid Rent	20,250	-2,250	18000	GST Clearing	2,000	1,088	3088
Inventory	50,000	-47,000	3000	Salaries Payable	0	24000	24000
Investment in Debentures	100,000		100000	PAYE Payable	0	8000	8000
Computer Equipment	12,000		12000	Income Tax Payable	0	6154	6154
Dividends Declared	5,000	-5,000	0	Retained Earnings	8,650	-5000	3650
Salaries Expense	28,800	32,000	60800	Foreign Currency Reserve	12,000		12000
Cost of Goods Sold	0	47000	47000	Share Capital	90,000		90000
Sales Returns & Allowances	200		200	Gain on Sale of Building	16,000		16000
Sales Discounts	800		800	Sales Revenue	120,000	5000	125000
Bad Debt Expense	0	2500	2500	Interest Revenue	0	500	500
Other Operating Expenses	4,200		4200
Interest Expense	500		500
Warranty Expense	0	2000	2000
Rent Expense	0	2588	2588
Depreciation Expense, Equipment	0	400	400
Income Tax Expense	0	6154	6154
OCI Loss on Foreign Currency	10000		10000		_________
Total	290250	44642	334892	Total	290250	44642	334892

Income Statement
Sales Revenue	125000
Less:
Sales Returns & Allowances	200
Sales Discounts	800
Net sales		124000
Less:Cost of Goods Sold		47000
Gross Income		77000
Less: Operating expenses:
Salaries Expense	60800
Bad Debt Expense	2500
Other Operating Expenses	4200
Warranty Expense	2000
Rent Expense	2588
Depreciation Expense, Equipment	400
Gain on sale of building	-16000	56488
Operating income		20512
Add/(Less) Non-operating items:
Interest Expense	-500
Interest Revenue	500	0
Pre-tax income		20512
Less:Income Tax Expense(20512*30%)		6154
Net Income		14358
Weez Ltd
Statement of Comprehensive Income
for the month ending 28 February 2018
Beginning retained Earnings	8,650
Net Income for the month	14358
Less:Dividends Declared	-5000
Ending Retained earnings	18,008
OCI Loss on Foreign Currency	-10000
Ending comprehensive income	8,008