Question

Bella Groove and Frankie Jay commenced a new business on 1 January 2020. The business will operate a hip-hop dance studio, called ‘Groovy Dancing’ . Bella and Frankie will operate the business as a partnership. The dance studio will offer dance classes to children and adults. People will sign-up for classes for a period of 3 months at a time (with people attending one class each week), and sessions will run from February – April, May – July, August – October each year. The classes
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cost $50 per month (with $150 payable for each 3-month session), and people can pay as follows:
• $150 paid upfront for 3-months of dance classes; or • $50 per month, payable on the last day of each month (for each of the 3 months of dance classes).
During the first six months of operations, the following events and transactions occurred. Note: all payments made by Groovy Dancing were made from the business bank account.
Date Detail 3 Jan Bella Groove and Frankie Jay each contributed $10,000 of personal funds into the business bank account.
5 Jan Groovy Dancing rented a studio for the business, for a period of 12 months (starting on 1 February 2020 – 31 January 2021). Rent is to be paid 3-monthly in advance. Groovy Dancing paid $3,000 to the landlord for rent for February – April 2020.
10 Jan Groovy Dancing contracted Choice Flooring to supply and install a floating dance floor at the studio. The dance floor was installed, and Groovy Dancing received an invoice for $5,000. The due date for payment of the invoice is 8 February 2020.
22 Jan Groovy Dancing purchased and paid for a computer and sound system for the business. The computer cost $2,600 and the sound system cost $1,200.
25 Jan Groovy Dancing purchased and paid for advertising materials (flyers, balloons, fridge magnets) from Swift Promotions Ltd for $900.
26 Jan At the Australia Day celebrations that were held in town, Groovy Dancing held two free outdoor community hip-hop dance classes with the aim of: promoting the new business, and to advertise the new hip-hop dance classes that were going to commence at their studio on 1 February 2020. Bella and Frankie handed out all of the advertising materials on the day. They received lots of positive interest from community members about their new business.
27 Jan Groovy Dancing received a number of telephone calls from people interested in signing up for the new hip-hop dance classes. 32 people signed up for classes for February – April 2020, and each of these people paid the $150 fee for these classes (via direct deposit into Groovy Dancing’s bank account).
28 Jan Groovy Dancing received more telephone calls from people interested in signing up for the new hip-hop dance classes. Another 40 people signed up for classes for February – April 2020. 30 of these people paid the $150 fee for these classes (via direct deposit into Groovy Dancing’s bank account), and the other 10 people agreed to pay $50 on 28 February, 31 March, and 30 April.
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31 Jan Groovy Dancing received more telephone calls from people interested in signing up for the new hip-hop dance classes. Another 25 people signed up for classes for February – April 2020, and each of these people paid the $150 fee for these classes (via direct deposit into Groovy Dancing’s bank account).
1 Feb Groovy Dancing paid $2,400 for business insurance, for the period 1 February 2020 – 31 January 2021.
1 Feb Groovy Dancing paid the local radio station $580 for radio advertising (for advertising provided on 1 February, promoting the grand opening of the dance studio).
5 Feb Groovy Dancing paid the $5,000 owing to Choice Flooring (owing in relation to the floating dance floor supplied and installed in January).
28 Feb Groovy Dancing received $500 from the 10 customers that agreed to pay $50 per month (in February, March and April) for their dance classes.
28 Feb Bella Groove withdrew $1,000 from the bank account for personal expenses, and Frankie Jay withdrew $2,000 from the bank account for personal expenses.
31-Mar Groovy Dancing received $500 from the 10 customers that agreed to pay $50 per month (in February, March and April) for their dance classes.
1 Apr Groovy Dancing received an invoice from Telstra, for telephone and internet used by the business. The amount payable on the invoice is $300, and payment is due by 28 April 2020.
27 Apr Groovy Dancing paid Telstra the $300 that was owing.
28 Apr 60 people signed up for classes for May - July 2020, and each of these people paid the $150 fee for these classes (via direct deposit into Groovy Dancing’s bank account).
29 Apr Another 50 people signed up for classes for May - July 2020. 30 of these people paid the $150 fee for these classes (via direct deposit into Groovy Dancing’s bank account), and the other 20 people agreed to pay $50 on 31 May, 30 June, and 31 July.
30 Apr Groovy Dancing received $500 from the 10 customers that agreed to pay $50 per month (in February, March and April) for their dance classes.
30 Apr Groovy Dance paid $3,000 to the landlord for rent for May - July 2020.
10 May Groovy Dancing received an invoice from Origin Energy, for electricity used at the dance studio. The amount payable on the invoice is $750, and payment is due by 4 June 2020.
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31 May Groovy Dancing received $1,000 from the 20 customers that agreed to pay $50 per month (in May, June and July) for their dance classes.
2 Jun Groovy Dancing paid Origin Energy the $750 that was owing.
30 Jun Groovy Dancing received $1,000 from the 20 customers that agreed to pay $50 per month (in May, June and July) for their dance classes.
30 Jun Groovy Dancing received an invoice from Telstra (for telephone and internet used by the business), with an amount payable of $380. The due date for payment is 28 July 2020.
30 Jun Groovy Dancing needs to recognise an accrued expense for electricity, amounting to $420.
Additional information as at 30 June 2020:
• Depreciation to be recognised in the financial statements up to 30 June 2020 is: $100 for the floating dance floor, $200 for the computer and; $160 for the sound system. • Ignore any GST.
Required:
i. Prepare journal entries for January – June 2020 transactions listed above (including any adjusting entries). In relation to adjusting entries for prepaid expenses, depreciation and unearned revenue, prepare these entries as at 30 June 2020 (rather than at the end of each month). Include dates, references and narrations. (7.5 marks) ii. Prepare T-accounts in an Excel spreadsheet. Post all of the above journal entries to the T-accounts. Include dates and references for each entry. Total all of the T-accounts to determine their balances at the end of June 2020. iii. Prepare the ‘Adjusted Trial Balance’ in an Excel spreadsheet as at 30 June 2020. Use formulas to generate all of the figures in the ‘Adjusted Trial Balance’ from the balances in the T-Accounts. iv. Prepare the income statement, balance sheet, and statement of changes in equity in Excel. Use formulas to generate all of the figures in the financial statement reports from the ‘Adjusted Trial Balance’ .

Answer 1

1. In the books of Groovy Dancing :

Date	General Journal	Debit	Credit
January 2020		$	$
3	Cash	20,000
	Owners Equity		20,000
5	Prepaid Rent	3,000
	Cash		3,000
10	Dance Floor	5,000
	Accounts Payable		5,000
22	Computer System	2,600
	Sound System	1,200
	Cash		3,800
25	Advertising Supplies	900
	Cash		900
26	Advertising Expense	900
	Advertising Supplies		900
27	Cash	4,800
	Unearned Revenue		4,800
28	Cash	4,500
	Unearned Revenue		4,500
31	Cash	3,750
	Unearned Revenue		3,750
Feb
1	Prepaid Insurance	2,400
	Cash		2,400
1	Advertising Expense	580
	Cash		580
5	Accounts Payable	5,000
	Cash		5,000
28	Cash	500
	Revenue		500
28	Owners' Withdrawals	3,000
	Cash		3,000

Contd.

March
31	Cash	500
	Revenue		500
April
1	Telephone and Internet Expense	300
	Accounts Payable		300
27	Accounts Payable	300
	Cash		300
28	Cash	9,000
	Unearned Revenue		9,000
29	Cash	4,500
	Unearned Revenue		4500
30	Cash	500
	Revenue		500
30	Prepaid Rent	3,000
	Cash		3,000

May
10	Utilities Expense	750
	Utility Payable		750
31	Cash	1,000
	Revenue		1,000
June
2	Utility Payable	750
	Cash		750
30	Cash	1,000
	Revenue		1,000
30	Telephone and Internet Expense	380
	Accounts Payable		380
30	Utilities Expense	420
	Utility Payable		420

Adjusting entries:

Date	General Journal	Debit	Credit
		$	$
June 30	Depreciation Expense	460
	Accumulated Depreciation : Dance Floor		100
	Accumulated Depreciation : Computer System		200
	Accumulated Depreciation : Sound System		160
June 30	Unearned Revenue	22,050
	Revenue		22,050
June 30	Rent Expense	5,000
	Prepaid Rent		5,000
June 30	Insurance Expense	1,000
	Prepaid Insurance		1,000

iii.

Groovy Dancing Adjusted Trial Balance June 30, 2020
Account Titles	Debit	Credit
	$	$
Cash	27,320
Prepaid Insurance	1,400
Prepaid Rent	1,000
Dance Floor	5,000
Accumulated Depreciation : Dance Floor		100
Computer System	2,600
Accumulated Depreciation : Computer System		200
Sound System	1,200
Accumulated Depreciation : Sound System		160
Accounts Payable		380
Utility Payable		420
Unearned Revenue		4,500
Owners Equity		20,000
Owners Withdrawals	3,000
Revenues		25,550
Advertising	1,480
Rent Expense	5,000
Insurance Expense	1,000
Telephone and Internet Expense	680
Utilities Expense	1,170
Depreciation Expense	460
Totals	$ 51,310	$ 51,310

iv.a.

Groovy Dancing Income Statement For the period ending June 30
Revenue		$ 25,550
Expenses
dvertising	1,480
Rent Expense	5,000
Insurance Expense	1,000
Telephone and Internet Expense	680
Utilities Expense	1,170
Depreciation Expense	460	9,790
Net Income		$ 15,760

b.

Groovy Dancing Statement of Owners Equity For the period ended June 30, 2020
Capital introduced	$ 20,000
Add: Net income	15,760
Less: Owners Withdrawals	(3,000)
Owners Equity, June 30	$ 32,760

c.

Groovy Dancing Balance Sheet June 30, 2020
Assets		Liabilities and Owners Equity
Cash	$ 27,320	Accounts Payable	380
Prepaid Insurance	1,400	Utility Payable	420
Prepaid Rent	1,000	Unearned Revenue	4,500
Dance Floor, net	4,900
Computer System, net	2,400	Owners Equity	32,760
Sound System, net	1,040
Total Assets	$ 38,060	Total Liabilities and Owners Equity	$ 38,060