Question

The following information relates to the financial statements portion (questions 7-11 inclusive) of the test. Circe Ltd, a ca

i) The $2,200 of Accounts Receivable does not include $200 of boarding services provided in July, but not yet billed, and $100 of boarding services committed by contract to be rendered in August.

ii) The $1,800 of Office Supplies represents the balance available on 1 July 2020. The $600 of Offices Supplies Expense was for a purchase of office supplies in July. On 31 July, it was estimated that $800 of office supplies remained on hand.

iii) In May 2020, Circe Ltd purchased a 12 month insurance policy, effective the beginning of that month.

iv) The Office Equipment is depreciated at an annual rate of 20% on cost.

v) The Building has been depreciated for one year and eight months as of 1 July 2020.

vi) The Accounts Payable and Other Expenses balances do not include $1,200 of July expenses for which invoices were not received until the beginning of August.

vii) The Unearned Revenue of $6,000 represents customer prepayments for contracts to be performed equally over a five-month period. The July contract was performed but Unearned Revenue and Service Revenue were not adjusted.

viii) The Loan Payable is due two years from now. It carries a 6% annual interest rate, with interest only payments due every three months. The last three-month payment took place the end of May.

ix) The Salaries Expense reflects 20 days of paid work during July. As at 31 July, employees had worked an additional three days that would be paid on the next payroll date in August. The General Ledger includes a Salaries Payable account.

x) You may assume that all balances of all accounts were adjusted and correct at the end of the previous accounting period.

1. Prepare the current asset section of Circe Ltd's Balance Sheet.

2. Prepare the non-current asset section of Circe Ltd's Balance Sheet using the format required in this course.

3. Prepare the liability section of Circe Ltd's Balance Sheet using the format required in this course.

4. Prepare the equity section of Circe Ltd's Balance Sheet using the format required in this course. (Hint: Calculate the ending balance of Retained Earnings as a residual plug/balancing figure.)

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Answer #1

Answer No. 1 Current Assets:

Cash $ 6000

Account Receivable $ 2200

Office Supplies $ 1800

Prepaid Insurance $ 0

Note:  Adjustment

i)-  Account Receivable = Opening($ 2200) + Outstanding ($ 200) - Prepaid ($ 100) = $ 2300

ii)- Office Supplies = Opening($ 1800) + Purchases ($ 600) - Closing at the end($ 800)= $ 1600.

iii) Prepaid insurance $ 1,500 was paid in May.

Answer No. 2) Non Current Assets:

Building $2,00,000 - Accumulated Depriciation $ 1,000 = $ 1,99,000

Land $ 8,00,000

Office Equipment = $ 15000 - $ 3000 = $12,000

Note: Adjustments

iv) 20% of Office Equipment are depriciated. (Hence 20% of $ 15,000 = $ 3000)

v) Depriciation for building paid for 20 months= $20,000

Hence for 1 month depriciation will be= $20,000 / 20= $1000

Answer No. 3: Liabilities:

Accounts Payable $ 3,300 + $ 1,200 = $ 4,500

Unearned Revenue $ 6,000

Interest payable $ 1,000

Loan Payable $ 2,00,000 + $ 3,000 = $ 2,03,000

Note: Adjustment

vi) Accounts Payable outstanding by $ 1200 this month.

vii) 5 month revenue is $6,000 & 1 Month revenue is  = $6000 / 5 = $1,200

Hence Unearned Revenue will be= $1,200 + $4,800 (Prepaid Revenue)= $6,000

viii) Interest on loan payable in July month for 3 months = $ 2,00,000 @ 6% = $ 3,000

Answer No. 4) Equity

Share Capital $ 4,20,000

Retained Earning $ 3,30,400

Note: Adjustment

ix) $4,400 Salary expenses paid for 20 Days.

3 Days Salary outstanding is = ($4,400 X 3) / 20 = $ 660.

Salary Payable account debit $ 660

To Trading Profit & Loss Account $660

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