Analysis of the Transactions in the Journal Entities - Assignment Example

Accounting Name Institution Accounting Question 1 Date Transaction folio Dr Cr 7/30/12 Rent expense account $10,000 Bank account $10,000 Payment of rent by cash in the bank The transactions in this particular problem involve payment of expenses from the company’s bank account. The increase in expenses is debited while the decrease in cash in the bank is credited. The subsequent payment of rent expenses throughout the year will be recorded in the rent expense account that has been opened. The same applies to the recording of subsequent cash inflows and outflows. Question 2 date Transaction folio Dr Cr 9/30/ 2012 Chuck 1800 Morgan 3000 Armidale Bank Account 4800 Payments made to Chuck and Morgan for the services provided The journal entries account for the transactions that took place in sending money to personal accounts of Chuck and Morgan. Since the money is being channelled directly from the bank to their individual accounts, the bank account of Armidale is credited. This represents a transaction that occurs once. Therefore, the account will be closed and posted to the general ledger at the end of the financial period. Nevertheless, in case other payments are made to Chuck and Morgan, then the entries will be adjusted in their respective personal accounts. Question 3 date Transaction folio Dr Cr 10/01/12 The Couch $23,000 Chinese Designers $20,000 American Manufacturer $2,000 Transportation cost $500 Installation Cost $500 Recording the receipt of the couch on credit from the Chinese designers The journal entries above are for the transactions that took place on 10/01/12. The debit entry represents the value that has been charged on the couch account. The amount charged as the cumulative costs of the couch are the buying price plus any costs incurred before the couch was fully operational. This includes the installation costs, transportation costs, manufacturing costs and the costs of designing the couch. These costs are a must before this couch can be considered fully functional. All these expenses are considered incremental costs since they increase the price of a given commodity. The costs are non-recurring in nature and are therefore incurred just for the sake of the commodity in question. These costs have been incurred specifically to bring the commodity into the premise for the specific purpose of sale. On the other hand, recurring costs are ignored for the purposes of valuing the commodity. These costs may include rent for the premise used by the company for many other functions. Date Transaction folio Dr Cr The designer $20,000 The manufacturer $1,900 Transportation $500 Installation $500 Discount $100 Bank account $22,900 The journal entries above provide a detailed coverage of the settlement of sale contract that was entered on credit basis. The discount issued implies that Armidale will pay less amount of money. Therefore, Armidale will pay less $100 which is the value of discount. Therefore, the decision to credit manufacturing account is meant to ensure that the discount is appropriately reflected in the reduction of the subsequent cash paid. Question 4 date Transaction folio Dr Cr 10/01/12 iSLEEP $240,000 Bpple $240,000 Recording purchase of iSLEEP facilities on credit The above journal entries recognise the acquisition of the items of sale on credit basis. The items increase and therefore we debit asset account. Similarly, the increase in the account payable implies that we credit the account with the equivalent amount. date Transaction folio Dr Cr 10/10/12 Bpple $240,000 Bank account $240,000 Recording the payment made for the sale of the iSLEEP facilities The above entries record the payment of cash to a creditor for the iSLEEP commodities. Since the amount is wired directly from the bank account, the bank balance will reduce by the proportionate amount. At the same time, the reduction in the value of account payable means we have to debit the personal account of the creditor. date Transaction Folio Dr Cr 10/02/12 UNE $200,000 Isleep $200,000 Recording sale of iSLEEP facilities on credit The iSLEEP facilities have been sold to UNE on credit. The personal account of the customer is debited with the equivalent amount of the sale. Since the transaction leads to the reduction of the facilities, the iSLEEP facilities account is credited with the equivalent amount. Date Transaction folio Dr Cr 10/04/12 Abnormal loss $10,000 UNE $10,000 Recording realization of the loss caused by scratched items The transaction above recognises the loss that was incurred whose liability has been taken up the seller (Armidale). The value of the loss will be posted to the income statement at the end of the financial period. Therefore, the amount that the customer is supposed to pay is reduced by the equivalent value of the loss. This is the reason 10,000 has been credited on the customer’s account. Date Transaction folio Dr Cr 10/04/12 Armidale Bank a/c $190,000 UNE a/c $190,000 Payment of the net amount on the iSLEEP sold These journal entries track the payment of the amount owed by UNE. The amount is paid net of the loss that was negotiated with the seller. The consequence of the transaction is the increase in cash balance at the bank. Date Transaction folio Dr Cr 10/20/12 iSLEEP $300,000 Bpple $300,000 Acquisition of iSLEEP items from Bpple on credit Armidale acquires some more goods from Bpple on credit basis. This time round, the price per item is reduced to 600. Since the company purchased 500 items, the value of iSLEEP increases by 300,000. On the other hand, the amount due to the creditor also increases proportionately. Date Transaction folio Dr Cr 10/23/12 Bpple $300,000 Armidale Bank a/c $300,000 Payment for the iSLEEP facilities acquired on credit These journal entries records the settlement of the amount owed to Bpple from the purchase of goods on credit. The cash account of Armidale definitely reduces by 300,000 while at the same time the amount owed to the supplier also reduces by the proportionate amount. Date Transaction folio Dr Cr 12/01/12 UWS $750,000 iSLEEP $750,000 Recording sale of iSLEEP items on credit The above entries record the sale of 500 items at a unit price of 1500. The cumulative amount of the sale is 750,000. The sale arrangement is based on credit terms and therefore the customer’s personal account is debited with the value of sales. At the same time, the number of the items for sale also reduces. This treated by crediting the value of the reduction in the commodity’s account. Date Transaction folio Dr Cr 12/01/12 Shipping expenses $1000 Bank a/c $1000 Payment of shipping costs on behalf of UWS The payment of $1000 for shipment purposes is recorded since it is being paid by Armidale. The entry affects bank account and shipping expense account. Date Transaction folio Dr Cr 12/10/12 Armidale Bank a/c $750,000 UWS $750,000 Recording the receipt of the goods sold to UWS on credit Question 5 Beginning inventory + purchases = cost of goods available for sale Cost of goods available for sale – ending inventory = cost of goods sold Average cost per unit =  date purchases Sales Balance 10/01/12 300 @800 240,000 300 @800 240,000 10/02/12 100 190,000 200 @800 160,000 10/20/12 500 @600 300,000 700 @657.14 460,000 12/01/12 500 @1500 750,000 200 @657.14 131,428 Cost of goods sold = cost of goods available for sale – closing inventory Since we do not have the opening inventory, we shall take the value of purchases less the closing inventory to get the cost of goods sold. Total purchases = 240,000 + 300,000 = 540,000 Value of closing inventory is 131,428 Cost of goods sold over the period is 540,000 – 131,428 = 408,572 Question 6 Calculation of the present value of minimum lease rentals Annual lease rentals x PVIFA@10%,3 yrs 8000 x 2.4868 = 19,894.80 19,894.80 + 5000 = 24,894.80 Lease period 3/8 = 37.5% The lease agreement above is an operating lease. The lease period in the above agreement is lease than 75% of the economic life of the asset (37.5%). At the same time, the present value of periodical lease payments is less than 90% of the market price of the leased asset. Lastly, since the lease agreement does not provide an option of purchasing the asset by the lessee, this means that it cannot be a financial lease. Accounting for the lease In the books of the lessee, Armidale company: Lease rentals 5,000 Armidale bank account 5,000 (Recording the payment of the first instalment at the onset of the lease agreement) At the end of the first year: Lease rentals 8,000 Armidale bank a/c 8,000 (Recording the payment of the instalment at the end of the first year) Entries for depreciation expense Dr depreciation expense to the Income Statement Cr provision for depreciation a/c Cash Flow Operating Activities: Rent paid (120,000) Chuck and Morgan (4800) Purchase of iSLEEP (240,000) Sales receipt 190,000 Purchase of iSLEEP (300,000) Sales receipt 750,000 Shipping costs (1000) 275,200 Investing Activities The couch (22,900) (22,900) Financing Activities Lease deposit (5000) Lease rentals (8000) (13,000) Cash balance at the end of the financial year 239,300 References Choi, F. & Meek, G. (2010). International Accounting, 7th Ed. New York: Prentice Hall. Gilbertson, C. & Lehman, M. (2008). Fundamentals of Accounting: Course 1. New York: South- Western Education Pub. Weygandt, J.J., Kieso, D.E. & Kimmel, D.P.(2008). Accounting. New York: Wiley. Read More