Question

Case Study in Accounting: LIGHTS, CAMERA, ACTION! Andrew Son is a Grade 11 high school student in Richmond Hill, Ontario. He enjoys school and does very well in most of his classes, especially accounting. He likes accounting so much that he plans to become a Chartered Professional Accountant when he finishes university. Andrew started his first part-time job last summer as an usher at the local movie theatre, the Yorkland Theatre The Yorkland Theatre is a small theatre owned by Tony Broadway, who started the business in August 2018. The theatre has a fiscal year end of July 31. It is located in downtown Richmond Hill and has two screens that show current movies, as well as some older movies that Mr. Broadway expects would still draw a crowd. Ticket prices range from $7 for youth/seniors to $10 for adults, with Tuesday night being a discount night where tickets are 50% off. In order to start up the business, Mr. Broadway took out a 5-year $72,000 bank loan on August 1, 2018 at an annual simple interest rate of 12%. The bank loan payments are due annually and include interest. Mr. Broadway has contracted out the concession stand to a confectionary company, Yummy Treats, that serves popcorn, pop. candy and nachos. Mr. Broadway charges Yummy Treats 15% of the monthly gross revenue from concessions plus 13% HST which is payable at the end of each month. Mr. Broadway doesn't know much about accounting and has had his niece look after the bookkeeping and financial reporting. This summer Mr. Broadway's niece has decided to travel to Europe for 2 months and will not be around for the July 31 year-end. Mr. Broadway panicked because he did not have anyone else to complete the July 31st accounting procedures for the theatre. Andrew overheard Mr. Broadway talking about his dilemma and offered to help. Andrew completed the Grade 11 Accounting class last semester and felt confident in his ability to complete the accounting procedures for a small business. He knew that it would be a great experience to see if he could put his knowledge into practice. Mr. Broadway had been pleased with Andrew's work at the theatre and agreed to let Andrew complete the July 31st procedures for the business.
please answer the question1-5.

Answer 1

Answer :

1. Tranaction that occured on July 2, July 3, July 7, July 10, July 12, July 14, July 16, July 21, July 25, July 26, July

28, July 29 & July 31 (Annual Bank Loan payment of $14,000) are all either cash or bank transactions. These

transactions can not be recorded through journal entries in the books of accounts. Whereas, transaction that

occured on July 4 and July 31 (Receipt of statement from Yummy Treats) can be recorded in the accounting

books through Journal Entries.

2. Insurance policy purchased in November has insured period of calender one year. The year end falls on July 31

and therefore proporionate premium amount for the period upto July 31 should be taken and debited to

insurance premium a/c. to be considered as an expenses in Income & Expenditure A/c. The remaining

premium amount for balance period of next financial year should be debited to Pre-paid Insurance Premium

a/c. and should appear in Balance Sheet Asset Side

3. It is necessary to take an inventory at the end of the year. This will lead to correct Purchase figure and will

help accountanat to arrive at correct Gross Profit. This inventory amount gets sold in next financial year and

then it will appear under Sales A/c.

4. Eventhough the bill is received on August 5, it will be recorded in the financial year ending on Jyly 31. The

reason is that bill pertains for the financial period ending on July, 31 and as per accouning principles income

and expenses relevant to the financial year should be taken in that financial year only.

5. Mr. Broadway has to see that all the transactions are properly recorded and correct debit/credit allocation is

given. He has to supervise and ensure smooth functioning with the expertise help from Mr.Andrew Son.

Mr. Broadway must get his books regularly cheched from a senior accountant also since, Andrew Son has

little practical knowledge. Being found efficient and loyal, Andrew Son can be endtrusted with ticket sale job

also.