Financial Accounting (mgt101) Comprehensive assignment

Fall Semester 2008

INSTRUCTIONS TO ATTEMPT COMPREHENSIVE

PROBLEM OF MGT101 (FINANACIAL ACCOUNTING)
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Financial Accounting (mgt101) Comprehensive assignment
Fall Semester 2008

COMPREHENSIVE PROBLEM

For

Financial Accounting (mgt101)

Financial Accounting (mgt101) Comprehensive assignment
Fall Semester 2008
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On September 1st, 2007, Mr. Afnan organized a business called Tony’s Rentals
for the purchase of operating an equipment rental yard. Mr. Afnan’s new
business was able to begin operations immediately by purchasing the assets and
taking over the location of Rent-IT, an equipment rental company that was going
out of business.
The company closes its accounts and prepares financial statements at the end of
each month.
Part A
During September, company entered into the following business
transactions/events:

Sept 1, Mr. Afnan deposited Rs. 1, 00,000 cash name of Business, Tony’s
Rentals.
Sept1, Paid Rs. 9000 to Mr. Irfan as three month’s advance rent on the rental
yard and office formerly occupied by Rent-IT.
Sept 1, Purchased for Rs. 180,000 all the equipment from Rent –IT. Paid Rs.
70,000 cash and issued a one year notes payable for Rs. 110,000,
plus interest at the annual rate of 9%.
Sept 4, Purchased office supplies on account from Modern office Co; Rs.
1,630. Payment due in 30 days (these supplies are expected to last
for several months; so debit the office supplies asset account)
Sept 8, Received Rs. 10,000 cash from McBrayan Construction Co. as
advance payment on rental equipment.
Sept 12, Paid salaries for the first two weeks in September Rs. 3,600
Sept15, Excluding the McBrayan Construction Co advance, equipment rental
fees earned during the first 15 days of September amounted Rs.
6100, out of which Rs. 5,300 was received in Cash.
Sept17, Purchased on account from the Earth Movers, Inc., Rs. 340 in parts
needed to repair a rental tractor. Payment is due in 10 days.
Sept23, Collected Rs. 210 of accounts receivable recorded on September 15.
Sept 25, Rented a backhoe (digging machine) to Mission Landscaping at a
price of Rs. 100 per day, to be paid when the backhoe is returned.
Mission landscaping expects to keep the backhoe for about two or
three weeks.
Sept 26, Paid biweekly salaries, Rs.3, 600.
Sept 27, Paid the account payable to the Earth Movers, Inc., Rs.340.
Sept 28, Mr. Afnan withdrew Rs. 2,000 cash from business to pay the rent on
his personal residence.
Sept 29, Purchased a 12 month public –liability insurance policy for Rs. 2,700.
The policy protects the company against the liability for injuries and
Financial Accounting (mgt101) Comprehensive assignment
Fall Semester 2008

property damage cause by its equipment. However the policy goes

into effective on October 1.
Sept 30, Received a bill from Universal Utilities for the month of September
Rs.270. Payment is due in 30 days.
Sept 30, Equipment rental fees earned during second half of September and
received in cash amounted to Rs. 8,450.

Data for adjusting entries

a. The advance payment of rent on September 1st covered a period of three
months.
b. Interest accrued on the notes payable to Rent-IT amounted to Rs. 825 at
September 30.
c. The Rental Equipment was depreciated by the straight line method over a
period of 10 years.
d. Office supplies on hand at September 30 are estimated at Rs. 1100.
e. During September, the company earned Rs. 4, 840 of the rental fees paid
by McBayran Construction Company on September 08.
f. As of September 30, Tony’s Rental has earned five days’ rent on the
backhoe rented to Mission Landscaping on September 25.
g. Salaries earned by employees since the last payroll date (September 26)
amounted Rs. 900 at month end.
Part B

The company’s most recent bank statement reports the following information.
(Ignoring above information)
Particulars Rs.
Balance as per cash book 5877.
Cheques issued but not presented for payment 2013
Cheques deposited but not cleared up to 31-10-07 1419
Bankers had wrongly debited the firm's account with Rs. 225 which
was not rectified until 31st October

Part C
Mr. Afnan was running a manufacturing concern as a side business. Following
are information of that business.

Sep 1 Beginning balance: 800 units @ Rs. 6 / unit.

Sep 4 Received 200 units @ Rs. 7/unit.
Sep 10 Received 200 units @ Rs. 8/ unit.
Sep 11 Issued 800 units.
Sep 12 Received 400 units @ Rs. 8 /unit
Sep 20 Issued 500 units.
Sep 25 Received 100 units @ Rs. 8/ unit.
 Financial Accounting (mgt101) Comprehensive assignment
Fall Semester 2008

Sep 28 Received 600 units @ Rs. 9/unit.

Direct labor for the week totaled Rs.6, 000 and factory overhead is applied at the
rate of 75% of direct labor cost. 1,000 units of the product were manufactured out
of which 800 @ Rs. 40 units sold. There were no beginning inventories of work in
process and finished goods.

Requirement

From Part A:
(1) State whether all the events (September 1st to 30th September) are
transaction or not to Mr. Afnan’s business. Mention the reason if an event is why
not transaction.

(2) From the transactions of the month September (excluding adjusting entries), state
the nature of accounts and state which account will be debited and which account will be
credited.

Follow the given format to complete the this requirement.

Date Accounts Nature of Debit Credit Reason
involved account Rs. Rs.
Sept 1 Cash Asset 100,000 Increase in asset
Capital Owners Equity 100,000 Increase in
owners equity

(3) Journalize the transactions of September 01st to September 30th.

(4) Post to ledger accounts
(5) Prepare trial balance
(6) Pass adjusting entries
(7) Prepare adjusted Trial balance
(8) Income Statement for the month of September 30 and Balance Sheet as on
September 30.

From Part B
Prepare Bank Reconciliation Statement as on 30th September

From Part C
(a) Prepare store ledger card under FIFO method by using perpetual inventory
system.
(b) Calculate cost of ending inventory and Gross profit/ Gross Loss.
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 Solution
For Part A:
(1) State whether all the events (September 1st to 30th September) are
transaction or not to Mr. Afnan’s business. Mention the reason if an event
is why not transaction.
Answer:
All the events are transactions except the entry of September 25, because it
does not change the financial position of business for that particular period.

(2) From the transactions of the month September (excluding adjusting entries),
state the nature of accounts and state which account will be debited and which
account will be credited by filling up the appropriate boxes.

Follow the given format to complete the requirement. http://vujannat.ning.com Best Webs
Date Accounts Nature of Debit Credit Reason
involved account Rs. Rs.
Sept 1, Cash Asset 100,000 Increase in asset
Capital Owners 100,000 Increase in owners
Equity equity
Sept1, Prepaid Rent Asset 9,000 Increase in asset
Cash Asset 9,000 Decrease in asset
Sept 1, Rental Equipment Asset 1,80,000 Increase in asset
Cash Asset 70,000 Decrease in asset
Notes payable Liability 1,10,00 Increase in liability
Sept 4, Office supplies Asset 1630 Increase in asset
Accounts payable Liability 1630 Increase in liability
Sept 8, Cash Asset 10,000 Increase in asset
Unearned Rental Liability 10,000 Increase in liability
Revenue
Sept 12, Salaries Expense Expenses 3600 Increase in expense
Cash Asset 3600 Decrease in asset

Sept15, Cash Asset 5300 Increase in asset

Accounts Asset 800 Increase in asset
Receivable
Rental Fees Liability 6100 Increase in liability
earned
Sept17, Maintenance Expenses 340 Increase in expense
expense 340 Increase in liability
Accounts payable Liability
Sept23, Cash Asset 210 Increase in asset
Accounts Asset 210 Decrease in asset
receivable
Sept 25, No Entry
Sept 26, Salaries paid Expense 3600 Increase in expense
Cash Asset 3600 Decrease in asset
Sept 27, Accounts payable Liability 340 Increase in liability
Cash Asset 340 Decrease in asset
Sept 28, Drawings 2,000 Decrease in
Cash Asset 2,000 owner’s equity
Decrease in asset
Sept 29, Unexpired Asset 2700 Increase in asset
insurance
Cash Asset 2700 Decrease in asset

Sept 30, Utility expenses Expenses 270 Increase in expense

Accounts payable Liability 270 Decrease in liability
Sept 30, Cash Asset 8,450 Increase in asset
Rentals fees liability 8,450 Decrease in liability
earned

(3)
Journal

Date Particulars Debit Credit

(Rs) (Rs)
2007 Cash account 1,00,000
Sept 1 Afnan’s Capital 1,00,000
Sept 1 Prepaid Rent 9,000
Cash 9,000
Sept 1 Rental equipment 1,80,000
Cash 70,000
Notes payable 1,10,000
Sept 4, Office supplies 1630
Accounts payable 1630
Sept 8, Cash 10,000
Unearned Rental Revenue 10,000
Sept 12, Salaries Expense 3600
Cash 3600
Sept15, Cash 5300
Accounts Receivable 800
Rental Fees earned 6100

Sept17, Maintenance expense 340

Accounts payable 340
Sept23, Cash 210
Accounts receivable 210
Sept 25, No Entry No Entry
 Sept 26, Salaries paid 3600
Cash 3600
Sept 27, Accounts payable 340
Cash 340
Sept 28, Drawings 2,000
Cash 2,000
Sept 29, Unexpired insurance 2700
Cash 2700
Sept 30, Utility expenses 270
Accounts payable 270
Sept 30, Cash 8,450
Rentals fees earned 8,450

(4)
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Cash Book
Date Particulars Rs. Date Particulars Rs.
1-09 Capital account 1,00,000 1-09 Prepaid rent 9,000
08-09 Unearned rental 10,000 1-09 Rental equipment 70,000
fees
15-09 Rental fees earned 5,300 12-09 Salaries expenses 3600
23-09 Accounts receivable 210 26-09 Salaries expenses 3600
27-09 Accounts payable 340
30-09 Rental fee earned 8450 29-09 Unexpired insurance 2700
28-09 Drawings 2000
Debit balance. 323,720
It will show in trial
balance

Total 123960 123960

Debit balance Rs. 323,720

Follow the above mentioned format to prepare remaining ledger accounts.

(5)
Trial balance

Particulars Debit Credit

Rs. Rs.
1) Cash 32,720
2) Accounts receivable 590
 3) Prepaid rent 9000
4) Unexpired insurance 2700
5) Office supplies 1630
6) Rental equipment 180000
7) Notes payable 110000
8) Accounts payable 1900
9) Unearned rental fees 10000
10) Capital 100,000
11) Drawings 2000
12) Rental fees earned 14,550
13) Salaries expenses 7200
14) Maintenance expenses 340
15) Utilities expenses 270
Total 2,36,450 2,36,450

(6) Adjusting Entries

Date Particulars Debit Credit

(Rs) (Rs)
2007 Rent expense 3000
Sept 30 Prepaid rent 3000
Sept 30 Interest expenses 825
Interest payable 825
Sept 30 Depreciation expenses 1500
Accumulated depreciation 1500
180000 /10 *1/12=1500
Sept 30 Office supplies Expense 530
Office supplies 530
1630-1100=530
Sept 30 Unearned rental fees 4850
Rental fees earned 4850
Sept 30 Accounts receivable 500
Rental fees earned 500
5* Rs.100=500
Sept 30 Salaries Expense 900
Salaries payable 900
 (7)Adjusted trial balance

Particulars Debit Credit

Rs. Rs.
1) Cash 32,720
2) Accounts receivable 1,090
3) Prepaid rent (9000-3000) 6000
4) Unexpired insurance 2700
5) Office supplies (1630-530) 1100
6) Rental equipment 180000
7) Notes payable 110000
8) Accounts payable 1900
9) Unearned rental fees 5160
10000- 4840=
10) Capital 100,000
11) Drawings 2000
12) Interest payable 825
13) Accumulated depreciation: 1500
rental equipment
14) Salaries payable 900
15) Rental fees earned 19,890
14,550+4840
16) Salaries expenses 8,100
(7200+900)
17) Maintenance expenses 340
18) Utilities expenses 270
19) Rent expense 3000
20) Interest payable 825
21) Depreciation expense 1500
22) Office supplies expenses 530
Total 2,40,175 2,40,175
 (8) Income Statement
For the period ended 30th September,2007
Particulars Expenses Income
Rental fees earned 19,890

Salaries expenses(7200+900) 8,100

Maintenance expenses 340
Utilities expenses 270
Rent expense 3000
Interest payable 825
Depreciation expense 1500
Office supplies expenses 530 14,565
Net Income 5,325

Balance Sheet
As on 30th September
Assets Asset
Rs.
Current Asset
Cash 32,720
Accounts receivable 1,090
Prepaid rent (9000-3000) 6000
Unexpired insurance 2700
Office supplies (1630-530) 1100 43,610
Fixed Asset
Rental equipment 180000
Accumulated depreciation: (1500) 1,78,500
rental equipment
Total Assets 2,22,110
Liabilities Rs.
Current Liabilities
Notes payable 110000
Accounts payable 1900
Unearned rental fees 5160
10000- 4840=
Interest payable 825
Salaries payable 900
1,18,785
Capital 100,000
Drawings (2000)
Net Income 5,325 1,03,325
Total Liabilities 2,22,110
Part B
Solution

Particulars Rs.
Balance as per cash book (Dr.) 5877
Add: Cheques issued but not presented for payment 2013
7890

Part C
Solution
Prepare store ledger card under FIFO

Date Received Issued Balance

Units Unit Amount Units Unit Amount Units Unit Amount
cost$) cost($ cost($
Feb 800 6 4800
01,
Feb 200 7 1400 800 6 4800
04, 200 7 1400
Feb 200 8 1600 800 6 4800
10 200 7 1400
200 8 1600
Feb11 800 6 4800 200 7 1400
200 8 1600
Feb12 400 8 3200 200 7 1400
200 8 1600
400 8 3200
Feb20 200 7 1400 300 8 2400
200 8 1600
100 8 800
Feb25 100 8 800 300 8 2400
100 8 800
Feb28 600 9 5400 300 8 2400
100 8 800
600 9 5400

Direct Material (issued) = 8600

Direct Labor = 6000
FOH (75% of Direct labor) = 4500
Cost of goods manufactured =19100
Units manufactured =1000
Cost per unit = 19100/1000
=Rs.19.1/unit
Ending inventory = 1000 x 19.1
= 19100
COGS = 800 x 19.1
 = 15,280
Sales = 800 x 40
= 32000

GP =32000 – 15,280
= 16,720

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