Question

Q-Show the effect of the adjusting entry on Income statement and balance sheet at the end of the

    Current calendar year

On June 30 of the current calendar year, Apricot Co. paid $9,500 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to expense accounts at the time of cash payment.

Tracy Underhill operates as a sole trader. Below is a trial balance extracted from her books as at

     31 December 2017.

Trial balance for Tracy Underhill as at 31 December 2017

	Debit	Credit
	£                    _ .	£
Sales revenue		695,000
Inventory (as at 1 January 2017)	105,800
Purchases	625,200
Non-current assets at cost:
Equipment	100,000
Motor vehicle	80,000
Accumulated depreciation:
Equipment		10,000
Motor vehicle		10,000
Insurance	14,700
Rent	30,000
Heating and lighting	10,000
Salaries and wages	40,000
Motor expenses	15,300
Miscellaneous expenses	28,500
Receivables	110,000
Allowance for receivables		14,000
Payables		101,500
Cash	71,000
Bank loan		100,000
Capital		300,000
Total	1,230,500	1,230,500

Additional information is provided for use in preparing the company’s adjustments:

1. The value of closing inventory is £102,500.
2. Interest is payable on the bank loan at eight per cent per annum. The annual amount due as at 31 December 2017 had not yet been paid.
3. Tracy has paid her rent until 31 March 2018. Her annual rent is £24,000.
4. Office equipment has a useful life of ten years and a residual value of £0. It is to be depreciated on a straight-line basis.
5. The motor vehicle with a useful life of ten years and an estimated residual value of £30,000 is to be depreciated on a straight-line basis at a rate of 10%.
6. Tracy finds that receivables of £10,000 need to be written off as irrecoverable.
7. The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2017.
8. The heating bill will arrive on 5 January and about £1,000 is expected to relate to the period until 31 December.

Answer 1

On June 30 of the current calendar year, Apricot Co. paid $9,500 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to expense accounts at the time of cash payment.Tracy Underhill operates as a sole trader. Below is a trial balance extracted from her books as at

  

The value of closing inventory is £102,500.

Interest is payable on the bank loan at eight per cent per annum. The annual amount due as at 31 December 2017 had not yet been paid.

Tracy has paid her rent until 31 March 2018. Her annual rent is £24,000.

Office equipment has a useful life of ten years and a residual value of £0. It is to be depreciated on a straight-line basis.

The motor vehicle with a useful life of ten years and an estimated residual value of £30,000 is to be depreciated on a straight-line basis at a rate of 10%.

Tracy finds that receivables of £10,000 need to be written off as irrecoverable.

The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2017.

The heating bill will arrive on 5 January and about £1,000 is expected to relate to the period until 31 December.

Answer

INCOME STATEMENT          
PARTICULARS   NOTES   AMOUNT   AMOUNT
SALES           695000
PREPAID EXPENSES          
RENT       6000  
HEATING EXPENSES       9000  
BAD DEBT PROVISIONS       4000   19000
INCOME           714000

COST OF GOODS SOLD   1       628500
INSURANCE       14700  
RENT       24000  
HEATING AND LIGHTING       1000  
SALARIES AND WAGES       40000  
MOTOR EXPENSES       15300  
MISC EXPENSES       28500  
INTEREST ON LOAN       8000  
BAD DEBTS WRITTEN OFF       20000  
OTHER EXPENSES           151500
NET LOSS           -66000

BALANCE SHEET          
ASSETS          
NON CURRENT ASSETS          
EQUIPMENT       100000  
MOTOR VEHICLE       80000  
NET LOSS       66000  
NON CURRENT ASSETS (A)           246000
CURRENT ASSETS          
CLOSING STOCK       102500  
RECEIVABLES       100000  
CASH       63000  
PREPAID EXPENSE          
RENT       6000  
HEATING EXPENSES       9000  
CURRENT ASSETS (B)           280500
ASSETS (A+B)           526500
LIABILITIES          
CAPITAL       300000  
BANK LOAN       100000  
LIABILITIES (A)           400000
CURRENT LIABILITES          
ALLOWANCE TO RECEIVABLES       10000  
PAYABLES       101500  
ACCUMULATED DEPRECIATION          
EQUIPMENT       10000  
MOTOR VEHICLE   2   5000  
CURRENT LIABILITIES (B)           126500
LIABILITIES (A+B)           526500
NOTES-  

1. COST OF GOODS SOLD  
OPENING STOCK   105800
PURCHASE   625200
CLOSING STOCK   102500
COGS   628500
2. DEPRECIATION  
EQUIPMENT   100000
USEFUL LIFE   10
DEPRECIATION= 100000/10   10000
MOTOR VEHICLE   80000
USEFUL LIFE   10
RESIDUAL VALUE   30000
DEPRECIATION   10%
(80000-30000) *10 %   5000

Any doubt comment below i will explain or resolve until you got....
PLEASE.....UPVOTE....ITS REALLY HELPS ME....THANK YOU....SOOO MUCH....
Please comment if any querry i will resolve as soon as possible