Question

The trial balance of YTP Supplies Pte Ltd (“YTP”) was given as at 31 December 20X6:

	Debit	Credit
Account Title	$	$
Cash	39,410
Accounts receivable	32,400
Inventory	22,000
Purchases	160,000
Prepaid Insurance	6,000
Office supplies	4,440
Freehold Land	3,000,000
Building	2,400,000
Accumulated depreciation - Building		48,000
Motor vehicles (MV)	234,000
Accumulated depreciation - MV		70,200
Accounts payable		33,690
Share capital		5,000,000
Retained earnings		647,600
Dividends	150,000
Sales		359,900
Sales Returns	2,500
Salaries expense	92,440
Utilities expense	16,600
Rental expense	59,600
Bank loan		60,000
	6,219,390	6,219,390

Before you prepare the financial statements, you manage to extract out the following additional information.

Additional information:

(i) The 4-year bank loan of $60,000 was entered into on 1 October 20X6. It carries an annual interest of 5% payable on 1 October annually. The first interest payment will be made on 1 October 20X7.

(ii) The $6,000 prepaid insurance was purchased on 1 July 20X6 for a 2-year fire insurance coverage for the building effective 1 July 20X6.

(iii) On 12 December 20X6, the company was informed that one of its customers had severe financial difficulties. The amount owing was $780. The company had not made any allowance for this bad debt.

(iv) On 27 December 20X6, a customer prepaid the company $1,600 in cash for an item to be delivered one week later. The accounts clerk did not record the transaction since the item was not delivered yet.

(v) As at 31 December, salaries amounting to $7,800 remained outstanding. No entry was made for this amount.

(vi) The building was purchased on 1 January 20X5. It was expected to have zero residual value and a useful life of 50 years. The motor vehicles were purchased on 1 January 20X3. They are expected to have zero residual value and a useful life of 10 years.

(vii) YTP adopts a periodic inventory system. A stock count was done and the inventory at year end was $58,300.

Required:

(a) Apply the accrual concept of accounting and prepare all necessary adjusting or additional journal entries as required by the additional information. Journal narratives are not necessary.

(b) Prepare the Statement of Financial Position for YTP as at 31 December 20X6, incorporating all the necessary adjustments.

Answer 1

a)Please find Journal Entries as Below

1) Interest Expense Dr 750

To Interest Accrued 750

(Interest due for Month Oct to Dec)

2) Insurance Dr 1500

To Prepaid Insurance 1500

(Being Insurance Expence Booked from July 16 to Dec 16)

3) Provision for Bad debts 780

To Allowance for Bad Debt 780

(Being Provision for Bad Debts)

4) Cash Dr 1600

To Advance from Customer 1600

5) Salary Dr 7800

To Outstanding Salary 7800

6) Depreciation Dr 48000

To Accumulated Dep-Building 48000

7) Depreciation Dr 23400

To Accumulated Dep-MV 23400

8) Inventory Dr 58300

To Profit and Loss a\c 58300

All Expense and Income will be transfered to Profit and loss account.

And Net results will be transfered to Retained Earnings.

b)

Income Statment

Expense	Amount	Income	Amount
Opening Inventory	22000	Sales	359900
Purchase	160000	Inventory	58300
Sales Return	2500
Salaries	100240
Utilities Expense	16600
Rental Expense	59600
Interest Expense	750
Insurance Expense	1500
Office Supplies	4440
Provision for Bad Debts	780
Depreciation	71400
		Net Loss	21610
Total	4398	Total	439810
Net Loss	21610
Dividend	150000	Loss Transfered to Reserve	171610
Total	171610	Total	171610

Balance Sheet as on 31 December 2016

Particulars	Amount	Particulars	Amount
Share Capital	500000	Building(Net)	2304000
		Free Hold Land	3000000
Retained Earnings	475990	Motor Vehicle(Net)	140400
Account Payable	33690	Inventories	58300
Bank Loan	60000	Account Receivable	32400
Salary Outstanding	7800	Prepaid Insurance	4500
Allowance for Bad debt	780	Cash	41010
Interest Accrues	750
Advance from customer	1600
Total	5580610	Total	5580610