Question

Your friend, Jane Lee, recently won the Lotto Max and is planning to sell her business and move to England. Jane owns the Vancouver Running Centre Inc. (Centre) that offers training and running clinics. She has provided you with the trial balance for the year ended October 31, 2018 (the company’s year-end).

Vancouver Running Centre Inc.

Unadjusted Trial Balance

October 31, 2020

	Account Name	Trial Balance
		DR		CR
Cash		$ 43,000
Accounts Receivable		25,000
Inventory		54,000
Supplies		2,500
Prepaid Insurance		4,800
Computer equipment		52,000
Accumulated Depreciation				6,000
Bank loan				$ 15,000
Accounts Payable				17,000
Unearned Revenue				30,000
Common Shares				25,000
Retained Earnings				0
Dividends Declared		15,000
Revenue earned				320,300
Cost of goods sold		47,000
Wage expense		78,000
Interest expense		5,000
Advertising expense		7,500
Depreciation expense		2,000
Telephone expense		8,000
Rent expense		60,000
Supplies expense		9,500
Total		$413,300		$413,300

Required:

She has asked you to review the trial balance and the additional information and prepare any adjusting journal entries you believe are necessary to ensure the accounts are complete and accurate in accordance with Generally Accepted Accounting Principles. Place your responses together with supporting calculations in the table provided. Explanations are not required.

1) The computer equipment is in excellent shape. It was purchased on July 1, 2019 and is expected to have a useful life of 4 years at which time it is expected to be sold for $4,000.

2) On February 1, 2020, Centre received and recorded in Revenue Earned a $20,000 cash advance from the Richmond School Board. The payment covers marathon training for the eight-month period starting July 1, 2020.

3) Each of Centre’s employees is paid $1,500 every two weeks – i.e.10 days of work. The six employees did not receive a pay cheque for the last seven working days of October 2020, as the bookkeeper was ill. The amounts were both recorded and paid upon her return on November 4, 2020.

4. Centre’s sales invoices for the last two weeks of October 2020 have not been prepared nor recorded. You estimate that $14,500 of services rendered during that period has not been recorded or billed to customers.

5. An inventory count completed at October 31, 2020 revealed inventory of $44,700.

6) On January 1, 2020 Centre purchased a two-year liability insurance policy for $4,800.

7) A letter from Centre’s landlord dated October 25, 2020 demands a total of $18,000 to be paid to cover the rent for the months of September to November 2020 inclusive. Centre’s monthly rent expense has been constant for the past three years.

8) Supplies on hand at October 31, 2020 are estimated at $3,500.

Answer 1