251SAMPLE_MID

251SAMPLE_MID - SECTION 1, TECHNICAL QUESTIONS: Q.A THE...

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SECTION 1, TECHNICAL QUESTIONS: Q.A THE ACCOUNTING CYCLE (28 MARKS = 28 MINUTES) Andy’s Yard Care Service Company Limited (AYC) Andy Smith has been operating for 3 years. The company provides lawn- mowing, tree trimming and weeding services to private residences in the lower mainland. Andy incorporated the company on January 1 st , 2006 and contributed equipment with a fair market value of $50,000 to the business in exchange for common shares valued at $10,000 and a $40,000 loan, payable to Andy. The following is the trial balance for AYC at January 1 st , 2009: Debit Credit Cash $ 23,500 Accounts Receivable 18,000 Supplies Inventory (1) 1,000 Equipment (2) 50,000 Accounts Payable $ 6,000 Wages Payable 5,000 Loan Payable (3) 40,000 Accumulated Amortization – equipment 30,000 Common Shares 10,000 Retained Earnings 1,500 $ 92,500 $ 92,500 (1) Consists of fertilizer and topsoil, used in lawn care. (2) Contributed to the business January 1, 2006, estimated to have a 5 year useful life, with no residual value. (3) Shareholder loan payable bears interest at 10% annually. Interest on the loan is paid on June 30 th and December 31 st each year. Andy does not anticipate receiving any payments on principal until the business becomes better established. REQUIRED: i) Prepare journal entries for the information provided below and on the next page (which covers transactions for the first 3 months of 2009), or explain why no entry is required. (Clearly label each account affected, but detailed explanations for each entry are not required). CLEARLY STATE ANY ASSUMPTIONS THAT YOU FEEL ARE NECESSARY. ii) Prepare any adjusting entries required at March 31 st , 2009. It is not necessary to prepare an entry to close the accounts. iii) Determine the March 31 st , 2009 balance for cash, showing your work. 1
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INFORMATION FOR THE FIRST 3 MONTHS OF 2009 1. Services Revenue: The company billed customers $47,250 for work done between January 1 st and March 31 st . This included GST charged to customers of $2,250. 2. At March 31 st 2009 there was $6,000 owing from customers that had not yet been collected in cash. 3. Operating expenses (not including wages) incurred in the three months were $11,500. All operating expenses are initially on credit. 4. AYC paid $14,000 to suppliers between January 1 st and March 31 st , 2009. 5. Wages earned by employees between January 1 st and March 31 st , 2009 were $8,500. There were no amounts owing to employees at March 31 st , 2009. 6. Supplies inventory costing $1,500 was purchased for cash. A count in the storeroom on March 31 st , 2009 showed that there were supplies costing $1,200 on hand. 7. Andy purchased three new ride-on mowers on January 1 st , 2009, for $6,000 each. He paid $10,000 in cash, and signed a note promising to pay the balance in nine months (the end of his busy summer season). There will be no interest paid on the note. The mowers are expected to have a 3 year life, with no salvage value. 8.
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251SAMPLE_MID - SECTION 1, TECHNICAL QUESTIONS: Q.A THE...

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