Question

In: Accounting

QUESTION 1 The pre-adjusted trial balance for Topsy Turvy Traders at 28 February 2019 reflected an...

QUESTION 1

The pre-adjusted trial balance for Topsy Turvy Traders at 28 February 2019 reflected an amount of R72 800 for rent received from a tenant, Gentle Giants CC. Gentle Giants took occupation on 1 February 2018. The March 2019 rental was received from Gentle Giants CC on 25 February 2019. What adjustments, if any, must the accountant make for the financial year ending 28 February 2019? (Ignore VAT).

a.

Dr Rent received R5 200; Cr Income received in advance R 5 200.

b.

Dr Rent received R5 600; Cr Income received in advance R 5 600.

c.

Dr Rent received R 5 600; Cr Accrued income R 5 600.

d.

Dr Rent received R6 067; Cr Income received in advance R6 067.

e.

Cr Rent received R5 600; Dr Income received in advance R 5 600.

f.

No adjustment necessary.

g.

Dr Rent received R5 200; Cr Income received in advance R 5 200.

Q.1.1

The financial year-end of the business is 28 February 2018. The accountant detemined that the advertising account for March 2018 of R2300 had been paid in February 2018. The year-end adjustment required is as follows:

a.

Debit Creditors Control R2 300; Credit Accrued expenses R2 300.

b.

Debit Prepaid expenses R 2 300; Credit Advertising R 2 300.

c.

Debit Accrued expenses R2 300; Credit Advertising R2 300

d.

No adjustment is required.

e.

Debit Advertising R2 300; Credit Prepaid expenses R2 300

Q.1.2

The financial year end of the business is 28 February 2019. The accountant noted at year -end that the insurance premuims for  March and April 2019 had been prepaid. Insurance premuims have remained constant for the duration of the year. The pre-adjusted trial balance showed an amount of R3 937.50 for insurance. What is the year-end adjustment required?

a.

Debit Prepaid expenses R281.25; Credit Insurance R281.25.

b.

Debit Accrued expenses R 562.50; Cr Insurance R562.50.

c.

Debit Insurance R328.13; Credit Prepaid expenses R328.13.

d.

Debit Insurance R562.50; Credit Prepaid expenses R562.50.

e.

Debit Prepaid expenses R328.13; Credit Insurance R328.13

f.

Debit Insurance R281.25; Credit Prepaid expenses R281.25

g.

Debit Prepaid expenses R562.50; Credit Insurance R562.50

Q.1.3

  1. When increasing the Allowance for Credit losses account, the Allowance for credit losses adjustment account is debited.

    True

    False

Q.1.4

  1. The adjustment for the allowance for credit losses is recorded in the balance sheet account "Allowance for credit losses adjustment" account.

    True

    False

Q.1.5

  1. Accrued expenses is a current asset account.

    True

    False

  

Q.1.6

  1. A physical stock count was done at the end of the financial year-end 28 Feburary 2021. The physical stock balances at this date were:

    • Inventory: R45 100
    • Consumable stores: R580
    • Stationary: R510

    The pre-adjusted trial balance on 28 February 2021 showed:

    • Inventory : R44 900
    • Stationery: R2 490
    • Consumable stores: R3 570

    What is the journal entry at the end of the year to record the stationery and consumable stores adjustment?

    a.

    DR Stationary R1 980; DRConsumable stores R2 990. CR Consumable stores on hand R4 970.

    b.

    DR Stationary R510; DR Consumable stores R580; CR Consumable stores on hand R1 090;

    c.

    Dr Consumable stores on hand R1 090; Cr Stationary R510; Cr Consumable stores R580.

    d.

    DR Consumable stores on hand R4 970; CR Stationary R1 980; CR Consumable stores R2 990.

Q.1.7

  1. A physical stock count was done at the end of the financial year-end 28 Feburary 2021. The physical stock balances at this date were:

    • Inventory: R55 100
    • Consumable stores: R540
    • Stationery: R410

    The pre-adjusted trial balance on 28 February 2021 showed:

    • Inventory : R54 750
    • Stationery: R2 460
    • Consumable stores: R3 580

    What is the journal entry at the end of the year for inventory if a perpetual inventory is maintained?

    a.

    Dr Cost of sales R350, Cr Trading inventory R350.

    b.

    Dr Purchases R350, Cr Trading inventory R350

    c.

    Dr Trading Inventory R350, Cr Cost of sales R350

    d.

    Dr Trading inventory R4 760; Cr Cost of sales R4 760.

Q1.8

  1. Allowance for credit losses is classified as a (n) _____ account.

    a.

    Liability;

    b.

    Income;

    c.

    Negative asset.   

    d.

    Expense;

Q.1.9

  1. A debtor, whose account of R10 400 had been previously written off as irrecoverable, sent a cheque in full settlement. This transaction has not been recorded yet and all subsidiary journals for the financial year end have been closed off. What journal adjustment must be made at the financial year-end relating to this transaction. Ignore VAT.

    a.

    Dr Credit losses R10 400; Cr Credit losses recovered R10 400.

    b.

    Dr Debtors Control R10 400; Cr Credit losses recovered R10 400.

    c.

    Dr Bank R 10 400, Cr Credit losses recovered R10 400

    d.

    Dr Bank R 10 400, Cr Debtors Control R10 400

Solutions

Expert Solution

1 Assuming last year's rent was propoerly recorded
Current year rent includes rent from 1st March 2018 to Mar 2019 which is 13 months
Per month rent expense =72800/13
5600
Thus, one month rent of march is received in advance
Ans: B Rent received Dr 5600 ; Cr income received in advance 5600
1.1 2300 expenses are paid in february
That means expenses are paid in advance or prepaid
We will have to decrease the operating expenses and increase the prepaid account
Ans: b Debit prepaid expense 2300; Credit advertising expense 2300
1.2 Insurance premium for 2 months is paid in advance
That means premium for 14 months is paid
=3937.5/14
281.25
Expenses are to be reduced and asset to be increased
Ans: a debit prepaid expense281.25; Cr insurance 281.25
1.3 Allowance for credit loss account is credit account which is an estimate bad debts as a % of receivables
It means receivables are reduced to an extent, hence the said account has credit balance
Ans: False
1.4 Allowance for credit loss adjustment are always reduced from receivables on the face of balancesheet, it can also be shown separately just in case
Ans: False
1.5 Accrued expense means expense yet to be paid
It is a liability
Ans: False
1.6 excess reported stationery and consumables
=reported-actual
Stationery =2490-510
1980
Consumables =3570-580
2990
We will have to reduce the same from inventory asset
Ans: d Drconsumables on hand4970; Cr stationery 1980 Crconsumable stores 2990
1.7 We have reported less inventory hence we would have reported more cost of goods sold. Now as inventory balance increases cost of goods sold decreases on physical verification
Difference =55100-54750
350
Ans: C Dr inventory 350; Cr Cost of sales350
1.8 Allowance for credit losses is an adjustment to receivables
Hence, it is a negative asset
Ans: c negative asset
1.9 Any previous bad debts recovered meaning we received cash and hence bank is debited and the acount of allowance once debited will have to be credited for allowance again
Ans: C Dr bank 10400; Cr Credit losses recovered 10400

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