The perfect brew-background and facts

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Reference no: EM131034595

Part A - Practice Set Assignment

The Perfect Brew

Background and Facts

Antonio de Pandi is the owner of The Perfect Brew, a specialty coffee machine business he started several years ago. The business is GST-registered.

Antonio sells 2 ranges of coffee machines at any time which he purchases from manufacturers. He operates the business himself and employs one person full-time to assist him. Antonio also provides consulting services to coffee shops designing floor plans for coffee shops and restaurants. The Perfect Brew uses a perpetual inventory system and uses FIFO (First In First Out).

The business is operated from a commercial building which the business purchased two years ago.

Antonio has a variety of clients with whom he has built up a strong relationship. He offers them terms of 30 days. Antonio submits his Business Activity Statements for GST quarterly to the Australia Taxation Office on an accruals basis.

Currently, the business uses a manual accounting system but plans to test a MYOB accounting system in August.

Accounting Information

The Perfect Brew uses the following specialised and general journals to record business transactions.

  • Sales Journal - to record all invoices issued for sales of inventory
  • Sales Returns Journal - to record all credit notes issued for returned inventory
  • Purchases Journal - to record all credit purchases of inventory
  • Cash Receipts Journal - to record all cash received
  • Cash Payments Journal - to record all cash payments
  • General Journal - to record all other transactions

The Perfect Brew uses a general ledger in the form of a 4 column running balance (as described on page 71 of Horngren Custom Text 4th edition). An Accounts Receivable and Accounts Payable subsidiary ledger is also used in this format.

Financial Statements are prepared at the end of each month. The accounts are closed off at the end of each month.

All necessary pro-formas are included and are to be used to complete the manual practice set for July. If you wish to use a T account format then you will need to generate your own forms to fill out. The assignment must be completed manually using the templates provided.

Chart of Accounts

Account Number

Account Name

Opening Balance

110

Cash at Bank

15,129

120

Accounts receivable

28,977

121

Allowance for Doubtful Debts

869

130

Prepaid Insurance


150

Office Supplies

945

160

Inventory

47,400

170

Office Equipment

15,280

171

Accumulated Depreciation - Office Equipment

5,195

180

Photocopier


181

Accumulated Depreciation - Photocopier


190

Premises

350,000

191

Accumulated Depreciation - Premises

35,000

200

Accounts Payable

34,100

210

Unearned Revenue


220

Wages Payable

308

230

GST Clearing

3,250

240

PAYG Payable

2,962

250

Superannuation Payable

530

280

Bank Loan - Non-current

300,000

300

Capital

75,517

310

Drawings


350

Income Summary





410

Sales Revenue


411

Sales Returns and Allowance


412

Discount Allowed


413

Discount Received


415

Consultation Revenue


420

Interest Revenue


500

Cost of Goods Sold


510

Advertising Expense


512

Bad and doubtful debts expense


515

Bank Charges


520

Depreciation Expense - Office Equipment


521

Depreciation expense - Photocopier


522

Depreciation Expense - Premises


530

Insurance Expense


531

Interest Expense


540

Office Supplies Expense


555

Postage


570

Superannuation expense


580

Telephone and Internet Expense


585

Travel


590

Wages Expense


All account balances at 30th June are normal in nature. 
Bank Reconciliation

The bank reconciliation for 30 June is shown below.

Balance as per bank Statement 15,576

Add deposits not yet credited 1,230

16,806

Less Unpresented cheques

38 260

46 27

51 1,390

1,677

Balance as per Cash at Bank Ledger Account 15,129

Subsidiary Ledgers

Accounts Receivable Subsidiary Ledger

As at 1 July

J. Miles

3,200

P Forest

7,221

J. Smith

5,927

Smell the Aroma

12,629


$28,977

Note: All balances relate to June Invoices

Accounts Payable Subsidiary Ledger

As at 1 July

Coffee Machine Co

29,600

Espresso Inc

2,625

M. Hoath

1,875


$34,100

Note: All balances relate to June Invoices

Inventory on Hand

As at 1 July


Units on Hand

Cost per Unit

Total

Fast Espresso

52

400

20,800

Coffee Genius

38

700

26,600




$47,400

JULY TRANSACTIONS

The following transactions relate to the operations of The Perfect Brew during July:

Note: All amounts are GST-inclusive unless otherwise stated.

Credit sales are made on credit terms of 2/10, n30


Date

Details

1. 1

July 1

Paid insurance for 6 months in advance - $6,600 by BPay

2. 2

July 1

Paid Coffee Machine Co in full for June inventory purchase taking advantage of the terms 3/10, n30- chq 52

3.

July 3

Sold 20 "Fast Espresso" coffee machines for cash - $22,000

4. 4

July 3

Purchased inventory on credit from Espresso Inc - $49,500

60 Coffee Genius machines

5.

July 4

Received amount owed by J. Smith for June invoices less applicable discounts

6. 5

July 5

Purchased office supplies for $550 - chq 53 (use a/c 150 Office Supplies)

7.

July 5

Invoiced J. Smith for designs completed for a proposed coffee shop, Inv 4562 for $9,515

8. 6

July 5

Received partial payment from J Miles for June - $1,200

No discounts were applicable

9. 7

July 8

Sold 50 Coffee Genius machines to P. Forest on credit for $82,500 - Inv 4563

10.8

July 8

Purchased inventory on credit from M. Hoath - $16,170(incl GST) -

35 Fast Espresso coffee machines at $420 each (excl GST)

11.

July 9

Received amount owed by P. Forest for June invoices less applicable discount

12.9

July 10

Received payment from Smell the Aroma for June balance - $12,629. They took advantage of the available discount

13.1

July 15

Paid monthly wages of $3,076 - by Direct Debit

($2,768 relates to July wages; $308 relates to the wages accrued for June)

PAYG deducted from these wages amounted to $920

14.1

July 15

Purchased photocopier for $2,761 from Printworld - chq 54

The printer has a life of 3 years with no residual value

15.1

July 16

Purchased a new laptop computer for private use at home for Antonio for $1620 - chq 55

16.

July 17

P Forest returned 2 Coffee Genius machines pots sent in excess of order. CRN 111 was issued. These coffee machines were from the inventory that cost $750

17.1

July 18

Paid amount owing to M Hoath - $1,875 chq 56

No discounts were applicable

18.

July 22

Paid Espresso Inc $20,000 as part payment for July invoice -BPay. No discounts were applicable

19.

July 22

Received invoice and paid for advertising in Coffee Bean Magazine, $385 - chq 57

20.

July 24

Paid PAYG tax payable for June of $2,962 with chq 58

21.

July 24

Paid superannuation contributions owing from June of $530 - chq 59

22.

July 26

Invoiced Smell the Aroma for further design work with Invoice totalling $15,510, Inv 4566

Design work - $15,510 incl GST

23.

July 26

Purchased coffee machines from M. Hoath for $19,360

40 Fast Espresso machines at $440 each (excl GST)

24.

July 26

Sold 15 Fast Espresso Machines for Cash - $18,876

25.

July 29

Paid the monthly telephone account for $413 by BPay

26.

July 29

Received remaining payment for J. Miles for June invoice - $2,000

27.

July 30

Received payment in advance from J. Miles for design project to be undertaken in August - $5,500 (GST incl)

28.

July 30

Antonio lodged his quarterly Business Activity Statement to the Australian Taxation Office for June together with the GST payable for the June quarter of $2,141 on chq 60

29.

July 31

Paid interest on bank overdraft 23rd July - $31

This information was obtained by inspecting the Bank Statement

30.

July 31

Made monthly repayment on bank loan of $3,450. The interest component of the loan is $1,250

This information was obtained by inspecting the Bank Statement

LOCAL BANK

BANK STATEMENT

JULY

Account Name: The Perfect Brew BSB: 026-391

Account number: 5421-6491

Date

Particulars

Debit

Credit

Balance

July 1

Balance brought forward



15576.00Cr


BPay

6600.00


8976.00Cr

2

38

260.00


8716.00Cr

3



1230.00

9946.00Cr




22000.00

31946.00Cr

4



5808.46

37754.46Cr


52

28712.00


9042.46Cr

7



1200.00

10242.46Cr

11

53

550.00


9692.46Cr

15

Direct Debit

3076.00


6616.46Cr


51

1390.00


5226.46Cr




7076.58

12303.04Cr




12376.42

24679.46Cr

20

54

2761.00


21918.46Cr


55

1620.00


20298.46Cr

22

56

1875.00


18423.46Cr


BPay

20000.00


1576.54Dr

27



18876.00

17299.46Cr

29

BPay

413.00


16886.46Cr




2000.00

18886.46Cr

31

Loan

3450.00


15436.46Cr

31

Interest OD

31.00


15405.46Cr


Bank fees

20.00


15385.46Cr


58

2962.00


12423.46Cr


59

530.00


11893.46Cr






 

Instructions for Completion of Practice Set

A. Open all general ledger accounts by inserting the opening balances at 1 July as shown in the Chart of Accounts above. For example, the balance of account 100 Cash at Bank is $15,129Dr, write opening balance in details and place $15,129 as the debit balance in the balance column.

B. Open all subsidiary ledger accounts for accounts receivable and accounts payable by inserting the opening balances as at 1 July as shown in the schedule of accounts receivable and accounts payable above.

Note: For the general ledger, accounts receivable subsidiary ledger and accounts payable subsidiary ledgers, all accounts have normal balances

C. Record the transactions for July noted above in the appropriate journals provided in the following pages (Narrations are not required)

D. Post daily to the accounts receivable and accounts payable subsidiary ledgers

Post daily from the general journal

Note: For posting reference purposes, use the journal page names and numbers. For example, when posting from the sales journal the reference will be SJ1

E. Prepare a bank reconciliation statement as at 31 July. Where possible clear the outstanding items from the June bank reconciliation and include any uncleared items in the July bank reconciliation. Prepare journal entries for any cashbook adjustments and post to the cash receipts and/or cash payments journal.

F. Total all columns of the special journals. Post from the special journals to the general ledger.

G. Prepare schedules of Accounts Receivable and Accounts Payable. Check that the total of the Schedule of Accounts Receivable equals the Accounts Receivable Control account in the general ledger and that the Schedule of Accounts Payable equals the Accounts Payable account in the general ledger.

H. Using the worksheet provided to prepare an unadjusted Trial Balance as at 31 July.

I. Using the information in A-G below, record the necessary adjusting journal entries at 31 July in the general journal. Post these to the general ledger.

J. Record these adjustments in the adjustments column of the worksheet.

K. Complete the worksheet.

Adjusting entry information as at 31 July

a) Unearned Revenue

On July 30, Antonio received payment from J. Miles for a design project to be undertaken in August. None of this is earned in July.

b) Insurance

Antonio paid 6 months of insurance as noted in transaction on July 1.

c) Depreciation

i. Office equipment is depreciated using the straight-line method.

ii. Existing office equipment has a useful life of 5 years with a residual value of $1,200.

iii. On July 15, Antonio purchased a photocopier. It has a useful life of 3 years and a residual value of zero.

iv. Premises were purchased 2 years ago. They are depreciated at 5% per annum using the straight-line method.

v. Note: depreciation is calculated for the month of July only. Round calculations to the nearest $.

d) Accrued Wages

Wages owing at July 31 totalled $891.

e) Superannuation

Superannuation contributions accrued for July total $412.

f) Office Supplies

A stocktake of office supplies was performed on July 31. It was noted that $590 of supplies remain.

g) Bad Debts

An assessment of bad and doubtful debts at July 31 showed a marked increase in the number of accounts falling into this category. Antonio has decided to increase the Allowance for Doubtful Debts to 4% of the accounts receivable balance at July 31.

Instructions for Completion of Practice Set continued

L. Record all closing entries in the general journal and post them to the general ledger.

M. Prepare a Post-closing Trial Balance as at 31 July

N. Prepare the Income Statement (Classified), Statement of changes in Equity, and Classified Balance Sheet.

Guidelines for the Timing of Completion

1. For Workshop 1 in Week 7 Students should read the Practice Set and all instructions carefully and bring all pages to the Workshop.

2. For Workshop 2 in Week 8 students should have completed Instructions A and B and have commenced recording and posting transactions (Instructions C and D).

3. For Workshop 3 in Week 9 Instructions C and D should be completed.

4. For Workshop 4 in Week 10 Instructions E, F and G should be completed.

5. After the Workshops have ended in Week 10 students should follow instructions in order to finish the Practice set by the due date of Monday 23rd May at 9.00am.

6. Complete Part B by due date of Monday 23rd May at 9.00am. Part B must be completed by each student individually.

Part B - Ethics Question.

On a recent trip from the Head Office in Brisbane to Singapore, F. Smith, sales manager of Enterprise Technology, took his wife along at the firm's expense without permission from the firm.

Lydia Brown, senior manager of sales and Smith's immediate supervisor, thought his travel expenses seemed excessive. Regardless of this, she approved the reimbursement because she owed Smith a favour. Lydia was aware that the firm's Chief Financial Officer reviews all expenses recorded in the cash payments journal, so she had the administration staff record F. Smith's wife's expenses in the general journal as follows:

Sales Promotion Expense 9 100

Cash 9 100

Required:

Answer the following questions.

  1. Does the recording the transaction in the general journal rather than cash payments journal affect the amounts of cash and total expenses reported in the financial statements?
  2. Explain why Lydia had these expenses recorded in the General Journal.
  3. What is the ethical issue in this situation? What role does Accounting play in this issue.

Answer each question fully. The total word count for Part B should be 300 words or less. Part B must be completed individually and must be each student's own work.

Reference no: EM131034595

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