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Question 6 (14 marks)  Answer each of the following five parts assuming a balance date of 30 June 2016

Accounting

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Question 6 (14 marks)  Answer each of the following five parts assuming a balance date of 30 June 2016. Journal narrations are not required.

1. Rance Ltd entered into a loan of $10,000 on 1 February 2016 and was being charged interest at 6% simple per annum.

Prepare any required general journal adjusting entry for the financial year assuming no payment of interest has been made. [2 marks]

2. Cotchin Ltd had accounts receivable at 30 June 2016 totaling $76,100 Dr. The doubtful debts allowance at the same time was $2,310 Cr (before any bad debts written-off), but it was decided by the accountant to increase the allowance for doubtful debts to 2% of adjusted accounts receivable after writing off $3,100 in uncollectable accounts.

Prepare the necessary general journal entries to record the above events. [3 marks]

(c)        Vickery Ltd, a small Australian service company, has 10 employees. The current annual payroll for these employees is $375,000. The employees are entitled to four weeks of annual leave and a leave loading of 17.5%.

 

Calculate the annual cost of the leave andprovide a general journal entry to record the weekly accrual of annual leave. [3 marks]       

4. Miles Ltd purchased machinery for $380,000 on 1 March 2016. It is estimated that the machinery will have a working life of 10 years but the company believes it will only use the machinery for 6 years and then sell it for an estimated $20,000. The company uses the straight line method of depreciation for the machinery.

 

The company purchased a computer on 1 July 2014 for $10,000. The company believes it will use the computer for ten years and can sell it at the end of that period for $500. The company uses the reducing balance method of depreciation and a depreciation rate of 26% p.a.

 

Prepare the necessary general journal entries to record the depreciation of the two assets for the financial year ending 30 June 2016. [4 marks]

 

 

5. Ellis Ltd paid $4,200 for 6 months advertising on 1 January 2016. The transaction was initially recorded as an asset.

 

Prepare any adjusting entry, if required, for the financial year ending 30 June 2016. Justify your answer. [2 marks]