Question

Analyze the transactions detailed in appendix C and create appropriate accounting entries that will be used by the team recreating the current year financial records; please provide an explanation for each entry. Finally, the team's third deliverable will be to answer the president's questions regarding financial accounting.

Appendix C

On December 22, 2019, Soapy Stuff, a long-time customer, purchased $125,000 worth of products to be shipped to its stores on January 2, 2020. The order was paid in full at the time of booking and the cost of goods sold is 40% of the gross revenue.

On December 15, 2019, Sophia, the sole shareholder, director and president, approved a cheque voucher to pay her $50,000 with the explanation "owner's drawing".

On December 31, 2019, an accident in the warehouse damaged $35,000 worth of inventory; the goods are not saleable or salvageable. Sophia instructed the accounting clerk to "leave it until next year".

On December 01, 2019, the company negotiated a $500,000 line of credit with RBC. This is in addition to the current line of credit with CIBC.

On December 10, 2019, Bubbles & Beyond purchased $65,000 worth of inventory to be shipped to its stores beginning February 01, 2020. Bubble & Beyond paid for the inventory and requested that Sophia's hold the goods on their behalf due to lack of space in their warehouse during renovations. Bubbles & Beyond sent Sophia's a copy of the document that covers the held goods under Bubbles insurance policy.

Answer 1

22 December, 2019:

Bank A/c Dr - 1,25,000 $

To Soapy Scuff A/c - 1,25,000 $

(Being Sales made to soapy stuff.Though the goods are requested to be delivered on January 2,2000,Since the ownership has been transferred and only delievry of goods is pending,the same has been recorded as sales for year 2019)

Cost of Goods Sold A/c Dr - 68,750 $

To Inventory A/c - 68,750 $

(Being Cost of Goods debited by crediting the inventory to recognise the expense of 68,750 which is 60% of sales amount, as the sale is made at 40% profit ratio)

15 December, 2019:

Owners Drawings A/c Dr -50,000 $

To Bank A/c - 50,000 $

(Being Amount withdrawn by owner should be receivable by company hence debited to recognise the asset and credited bank accordingly )

31 December, 2019 :

Since the instruction was to leave it intl next year, We do not make any entry to recognise the loss as on 31 December.

However if the Manageent intends to account for the loss,the same should be recorded as below :

Loss on Inventory A/c Dr - 35, 000 $

To Inventory A/c - 35,000 $

(Being Loss of nventory recognised and correspondingly iventory has been reduced)

1 December, 2019

Bank A/c Dr - 5,00,000 $

To Line of Credit A/c - 5,00,000 $

(Being on receipt of loan amount, Debit is given to bank and credit to Line of credit A/c as the same being liability)

10 December, 2019 :

Inventory A/c Dr - 65,000 $

To Bank A/c - 65,000 $

(Being Inventory purchased and amount paidd.Though the instruction was to deliver the goods post year end,the ownership has been transferred to Bubble&Beyond on December 10 itself,hence the same is recognised as asset in the books of Account)