ACC5202 Assignment 1
Weighting 15% Due Date: 24th March, 2017
Question 1 28 Marks
Financial balance for James Lee, Barrister, 29 February 2016 were as given in the table below:
Assets Liabilities Equity
Transaction No Cash at Bank Accounts Receivable Office Supplies Office
Equipment Accounts Payable Loan Payable J Lee Capital
Balances 6000 12250 1000 18875 2425 8750 26950
During the month of March, the business engaged in the following transactions:
1. March 3 paid accounts payable
2. March 6 collected $6000 of the monies owed by clients
3. March 8 purchased Office Equipment for $11000. Paid $1500 in cash and signed a loan agreement for the balance
4. March 15 billed customers for legal services performed $8500
5. March 16 purchased supplies $200 for cash and balance on credit $450
6. March 18 paid expenses in cash $8750 ($1250 for electricity, rent $1000, wages $6500) 7. March 24 sold item of office equipment worth $1350 for $350 cash and balance on credit
8. March 28 James Lee withdrew $4000 from the business.
9. March 31 supplies used during the period amounted to $700.
A. Record the effects of each transaction (1 to 9) for March, 2016 on the accounting equation. Show the total of each column after recording each transaction as illustrated in your textbook on page 51.
B. Discuss two (2) things that the owner James Lee would be interested in from the changes in totals for items in the accounting equation from the beginning to end of the month and state why? C. Prepare Journal entries for each of the transactions. D. Post these entries to the General Ledger
E. Prepare a Trial Balance at 31st March.
Question 2 7 Marks
Julie and Luigi Ketano have decided to lease premises to open a food outlet Pasta Passion. They intend to provide a wide range of products, from a variety of pasta and associated ingredients to take away pasta dishes such as lasagne and pasta salads.
A. Distinguish between economic and non economic information relevant to making decisions.
B. Write a brief memo to Julie and Luigi, identifying the 3 types of economic decisions they will be required to make and 3 types of non-economic information they might be required to consider in establishing their business.
Question 3 18 Marks
Straight Constructions Pty Ltd (trading as SContructions) is a fast growing business in the housing industry run by Steven Calloway. Steven has no accounting knowledge and simply keeps his invoices and receipts in a file which he takes to the accountant who prepares the financial statements. Steven does not use the financial statements for decision making but relies mainly on the fact that he has cash in the bank to judge how his business is going. Steven is negotiating a contract with a supplier of building materials who wants to see his financial statements to ensure that the business can meet payments each month. Steven has asked you to prepare his financial statements. Based on the information Steven has given you from his file, on 30th June, 2016 you establish the following:
Cash in the file 500
Cash in the bank 3800
Building services provided 550000
Amounts owed by customers 80000
Wages paid to employees 150000
Wages owed to employees 3500
Building supplies and expenses 310000
Building supplies on hand 18000
Amounts owed to suppliers 30000
Motor vehicle 32000
Motor vehicle expenses 5600
Electricity and telephone expenses 4000
Cash withdrawn by Steven for personal use 5700
Capital invested 94100
A. Using the information provided above, produce an Income Statement, Statement of Changes in Owner’s Equity and Balance Sheet on 30th June, 2016 for SContructions.
B. What does relevance mean in terms of the accounting statements you produced? How would the financial statements you produced help the supplier of building materials decide whether or not to trade with Steven. What parts of the financial statements would be positive indicators that SConstructions would pay on time and what items may cause some concern for the supplier?
C. Does SConstructions conform to the following accounting assumptions and why?
a. Accounting Entity assumption
b. Going concern assumption
Question 4 7 Marks
Refer to the information contained in the Nike Code of Ethics Inside the Lines
A. What is meant by being socially responsible?
B. Would the following situations be considered a breach of the Nike code of ethics and why?
a. A company director is asking that the company contribute $10000 to assist him to run for office as a member of parliament
b. A retailer offers executive members of the company all expenses paid holidays if they can have the rights to release a new product first
c. A director is aware that NIKE is shortly to announce a substantial profit decrease and thinks it would be a good time to sell shares
d. As an employee of NIKE you are in charge of outsourcing production of some of the company’s products. You are approached by a relative to assign a substantial contract to their firm.