The problem to be resolved: The following trial balance was extracted from the books of Maximum Auto Supplies Ltd at July 31, the end of the company's financial year. The company is owned by Samuel Maximo and is in the business of buying and selling movies on tapes. A/C Name Cash Accounts receivable Allowance for bad debt Merchandise Inventory Store Supplies Prepaid Rent Computer and Equipment Accumulated depreciation -Computer and Equipment Delivery Truck Accumulated depreciation - Delivery Truck Accounts payable Wages payable Uneamed Sales revenue Notes Payable, Long Term Samuel Maximo, Capital Samuel Maximo, Withdrawals Sales revenue Sales discount Sales returns and allowances Cost of goods sold Wages Expense Rent Expense Trial Balance as at July 31, 2021 Depreciation Expense - Computer and Equipment Depreciation Expense -Delivery Truck Store Supplies Expense Utilities Expense Bad Debt Expense Interest Expense Total DR Trial Balance 750,000 290,500 167,050 120,000 510,000 1,200,000 1,900,000 105,000 73.250 52,100 495,000 325.125 680,000 65,000 220,000 105,555 7,058,580 CR 25,000 150,000 400,000 150,000 1,000,000 2,500,000 2,833,580 7,058,580 The following additional information is available at July 31, 2021: (i) Rent of $510,000 was paid on April 1, 2021, for six (6) - months to September 2021. (ii) The computer and equipment were purchased on December 1, 2020 and have an estimated useful life of 10 years. This asset is depreciated on the double-declining depreciation method down to a residual value of $100,000.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Description and Instructions

You are a student from a prominent university and were sent out to work with a leading merchandizing company as a part of a work experience program. Having been introduced to the general manger you were told that the accountant who normally prepares the financial statements has suddenly resigned and there is no one available to prepare the company’s financial statements which are now due. As aspiring university student, you have expressed an interest in taking on the task. You are required to analyse the problem at hand then apply the accrual basis of accounting in the preparation of the company’s financial statements.

The problem to be resolved:
The following trial balance was extracted from the books of
Maximum Auto Supplies Ltd at July 31, the end of the
company's financial year. The company is owned by Samuel
Maximo and is in the business of buying and selling movies on
tapes.
A/C Name
Cash
Accounts receivable
Allowance for bad debt
Merchandise Inventory
Store Supplies
Prepaid Rent
Computer and Equipment
Accumulated depreciation -Computer and Equipment
Delivery Truck
Accumulated depreciation - Delivery Truck
Accounts payable
Wages payable
Uneamed Sales revenue
Notes Payable, Long Term
Samuel Maximo, Capital
Samuel Maximo, Withdrawals
Sales revenue
Sales discount
Sales returns and allowances
Cost of goods sold
Wages Expense
Rent Expense
Trial Balance as at July 31, 2021
Depreciation Expense - Computer and Equipment
Depreciation Expense-Delivery Truck
Store Supplies Expense
Utilities Expense
Bad Debt Expense
Interest Expense
Total
DR
Trial Balance
750,000
290,500
167,050
120,000
$10,000
1,200,000
1,900,000
105,000
73,250
52,100
495,000
325,125
680,000
65,000
220,000
105,555
7,058,580
CR
25,000
150,000
400,000
150,000
1,000,000
2,500,000
2,833,580
7,058,580
The following additional information is available at July 31, 2021:
(i) Rent of $510,000 was paid on April 1, 2021, for six (6) -
months to September 2021.
(ii) The computer and equipment were purchased on
December 1, 2020 and have an estimated useful life of 10
years. This asset is depreciated on the double-declining
depreciation method down to a residual value of
$100,000.
=
ii

$100,000.
(iii) The company has two deliver trucks and uses the units of
production method to compute the depreciation charges.
One of the trucks was purchased for $800,000 on August
1, 2018, and is recognized as truck A. The other which is
recognized as truck B was purchased for $1,100,000 on
October 1, 2020. The expected useful life of both truck is
ten (10) years or 120,000 miles. And the residual value on
both trucks is $200,000. In the 2018/2019 financial year
truck A drove 12,000 miles, 18,000 miles in 2019/2020,
and 21,000 miles in 2020/2021. Truck B drove 8,000 miles
in 2020/2021.
(iv) Wages earned by employees NOT yet paid amounted to
23,050 at July 31, 2021.
(v) A physical count of inventory at July 31, 2021 reveals
$165,070 worth of inventory on hand.
(vi) At July 31, 2021 $105,000 of the previously unearned
sales revenue had been earned.
(vii) The aging of the Accounts Receivable schedule at July 31,
2021 indicated that the estimated uncollectible on account
receivable should be $29,050.
REQUIRED: (A-D)
a) Prepare the necessary adjusting journal entries on July 31,
2021. [Narrations are not required]
b) Prepare Movies To Maximum Auto Supplies Ltd multiple-step
income statement for the year ended July 31, 2021.
c) Prepare Maximum Auto Supplies Ltd statement of owner's
equity for the year ended July 31, 2021.
d) Prepare Maximum Auto Supplies Ltd classified balance sheet
at July 31, 2021.

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