Reference no: EM133373365

Case Study: McTavish Ltd McTavish Ltd is a large UK company that distils and sells whisky. In December 20X7 a new financial controller was appointed and will be responsible for preparing the financial statements for the year ended 31 December 20X7. After reviewing the accounting records it has become clear that a number of transactions entered into over the last two years have been incorrectly accounted for. Additional information: (1) McTavish Ltd sells bottled whisky direct to wholesalers. On 1 November 20X7 it entered into an agreement with a new customer who supplies a chain of shops. Under this agreement, a consignment valued at cost of $600,000 was sold for $900,000 and McTavish Ltd is being paid as the goods are sold to the shops. Any unsold goods can be returned to McTavish Lid within three months of the date of sale. This transaction was treated as a normal credit sale. At 31 December 20X7 McTavish Ltd had received $225,000 from the new customer. (2) On 1 January 20X6 the company issued 50,000 4%% $10 convertible bonds at par. Each bond can be redeemed at par or converted into ordinary shares on 31 December 20X9. The equivalent effective interest rate on similar bonds without conversion rights was 6%. The full amount was credited to creditors: amounts falling due after more than one year and all interest paid up to 31 December 20X7 has been debited to interest payable. No other accounting entries have been made in respect of these bonds. (3) On 1 January 20X7 the company leased a grinding machine under an eight year contract. Lease payments are $65,000 payable annually in arrears. The only entry made in the accounts has been to recognise this year's lease payment as an expense in the profit and loss account under administrative expenses. The lease agreement shows that the rate of interest implicit in the lease is approximately 5%%, and the lessee is responsible for the maintenance of the machine. The present value of the minimum lease payments is $419,900. Other working papers show that the cash price of the machine was $450,000, and it has an expected economic life of nine years and a useful life to McTavish Ltd of 8 years.

Requirements Prepare the journal entries, with supporting calculations, that will be required to correct the accounting treatment of the above transactions as at 31 December 20X7. Ignore taxation