Question

Willow Deng is the sole owner of Spinnaker Pty Ltd, a private company selling sailing accessories in Adelaide. He has been experiencing tremendous growth in his business in recent years. He has approached Best Accounting Solutions Pty Ltd to help develop improved accounting systems for his business. Assume you are a graduate accountant working for Best Accounting Solutions Pty Ltd and you are required to prepare the year-end Balance Day Adjustments Journals for Spinnaker Pty Ltd.

SPINNAKER PTY LTD UNADJUSTED TRIAL BALANCE AS AT 30 JUNE 2020 Debit ($) Credit ($) Cash at Bank 90,700 Accounts Receivable 60,000 Inventory (30 June 2020) 48,845 Prepaid Insurance 6,000 Supplies 5,600 Office Equipment 80,000 Accumulated Depreciation– Off. Equip. 30,800 Land Bank Loan 25,600 50,000 Willow Deng , Capital (1 July 2019) 192,420 Willow Deng , Drawings 23,500 Sales Revenue Unearned Sales Revenue 345,400 6,870 Sales Returns & Allowances 9,670 Salaries Expense 34,600 Cost of Sales 187,500 Freight inward 7,865 Rental Income 20,100 Rent Expense 33,000 Interest Expense 4,900 Electricity and Gas Expense Discount allowed 4,690 9,000 Insurance Expense 6,230 Advertising Expense     7,890 .           . $645,590 $645,590

Additional information:

1. Office Equipment is expected to have a useful life of 10 years and will then be sold for an estimated amount of $3,000.
2. Accrued salaries expense at 30 June is $4,876.
3. $9,500 of the recorded sales represents payments for goods which will not be delivered until July 2020.
4. A physical count shows supplies of $1,450 on hand at 30 June.
5. The prepaid insurance was paid for twelve months commencing 1st March.
6. A physical stock take of inventory at 30 June reveals $47,000 on hand.
7. Upon receipt of the business’s bank statement, it was observed that the business had earned $1,050 rental income on 30 June 2020. This amount was directly paid by a tenant into the business’s bank account. The accounting records need to be updated for this transaction.
8. It is estimated that 3% of the 30 June balance of accounts receivable are unlikely to be received.
9. A payment of $5,029 on 20 May for advertising expense has been incorrectly debited to freight inward account.  

REQUIRED:

It is now the end of the financial year and based on the information Willow has provided above, the CEO of Best Accounting Solutions Pty Ltd (Lisa Turner) has asked you to prepare any necessary balance day adjusting journals.

Use the General Journal document provided on the following page to record any journal entries required.

All journals must be correctly formatted and include a narration (explanation) for each entry.

Answer 1

Office equipment

Useful life = 10 years

Estimated sale amount = $3,000

Cost = $80,000

Depreciation p.a. = (Cost - Estimated sale amount)/useful life

= (80,000 - 3,000)/10

= $7,700 p.a.