ACCT1008 - Rose Lief Case Study - Trial Balance - Financial Statements - Statement of Cash Flows - Accounting Assignment Help

Assessment Task:

ACCT1008 - Rose Lief Case Study Trial Balance Accounting Assignment Help

Task

QUESTION 1: Balance Day Adjustments 

Rose Lief owns and operates “The Heavenly Scent”, a successful Aromatherapy business specialising in the sale of aromatherapy essential oils. The business also runs aromatherapy courses, sells bamboo diffusers and a variety of aromatherapy books. The bamboo diffusers are made exclusively for The Heavenly Scent and they have recently featured in several health and alternative therapy magazines as a very effective diffuser of aromatherapy oils. As a result of the recent positive media coverage, the business has been growing and Rose has been too busy to undertake any record-keeping for the company. As a result, she has handed the record-keeping over to the accounting practice where you work as a graduate accountant. 

Rose has emailed you the following account information related to the year ended 30 June 2019:

The Heavenly Scent
Trial Balance
30 June 2019

REQUIRED:

It is now the end of the financial year, and based on the information she has provided below, Rose has asked you to prepare any necessary balance day adjusting journals.

Use the General Journal document provided to record the correctly formatted journal entries required and include a narration (explanation) for each entry.    

i.    $10,000 of the balance in Unearned Sales represent payments for an aromatherapy course that was held in the shop on 21 June 2019.

ii.    Upon receipt of the business’s bank statement, Rose realised that the business had earned $53 interest up to 30 June 2019. This amount was deposited directly into the bank account. The accounting records need to be updated to record this transaction.

iii.    The Prepaid Rent was paid on 1 May 2019 and was for shop rent paid in advance for the three months ending 31 July 2019.

iv.    Both the Shop Shelving and Oil Decanting Equipment are expected to be used evenly over their useful lives. The Shop Shelving is expected to have a residual value of $1,000 and a useful life of 7 years, while the Oil Decanting Equipment is expected to have no residual value and a useful life of 10 years.

v.    Rose realised she had forgotten to obtain business insurance, so she took out a 12-month insurance policy commencing on 1 April 2019. Rose recorded the full amount of the policy as an expense when it was paid.

vi.    It is estimated that 5% of the 30 June 2019 balance of Accounts Receivable is unlikely to be received.

vii.    A physical stocktake at 30 June 2019 revealed $89,000 of inventory on hand.

viii.    Rose last paid an electricity bill on 31 May 2019, and based on previous bills she has estimated that her power usage from then until 30 June 2019 was $780

QUESTION 2: Financial Statements 

Paddy Lock owns and manages “Latest Locks”, a retail shop and mobile locksmith specialising in key and keypad lock products and installations. The following adjusted Trial Balance for Latest Locks has been prepared at year-end by Mr Lock.

REQUIRED:

Using the Trial Balance provided below, prepare the following financial statements for the period in question:
a)    Fully classified Income Statement               
b)    Statement of Changes in Equity 

Mr Lock has provided the following additional information to assist in your statement preparation:

•    The stocktake performed at 30 June 2019 recorded an ending inventory balance of $35,400.
•    Included in the wages expense is $75,000 for the Locksmith who is on call 7 nights a week for emergency call-outs and the remaining amount is for the Bookkeeper who comes into the office three days a week.
•    The Rent Expense is for the premises which include the showroom and a small office.  The office rent comprises 30% of the total Rent Expense. 

QUESTION 3: Accounting Concepts 

You are a graduate accountant working for X² Chartered Accountants. Rose Lief, who owns and operates the Aromatherapy business “The Heavenly Scent” is one of their clients. Over the last year, Rose has expanded the business inventory lines to include aromatherapy books and bamboo diffusers made exclusively for “The Heavenly Scent”. To date, Rose has sold the bamboo diffusers only from The Heavenly Scent shop but has recently received interest from a number of online shops and one large retail outlet wanting to stock The Heavenly Scent aromatherapy oil range and the bamboo diffuser. Rose has decided to take up some of the online retail offers and as a result, will reduce the shop floor size of The Heavenly Scent and set aside a quarter of the floor space for a small office for the purpose of managing the administration details of her expanding business. 

Ms Lief has had a meeting with the Managing Partner of X² today and you were invited to attend the meeting. Ms Lief was excited at the new opportunities to increase the sales and offerings of The Heavenly Scent but is concerned about how she is going to account for her inventory so that she knows how much stock she has in the warehouse/storage room at any given time.  She has noticed that on occasion it appears that oil and diffusers have been taken from the shelves, however she doesn’t recall selling the products. She has noted that at times she is very busy serving customers and making bookings for the aromatherapy courses, so she may have overlooked sales.  She believes things will get even busier with the aromatherapy clinic opening.  

In addition to this, Rose attended an alternative therapies conference last month and she understands from talking with colleagues in the industry that by dividing the floor space into a shop and office will affect how she records rent in her Income Statement and is keen to have advice on what she must do. 

The Managing Partner discussed the issues that arose in the meeting with you after Ms Lief has left. The Managing Partner explains to you that she is extremely busy with several other clients at the moment and has asked you to prepare a letter addressed to Ms Lief that covers the points listed below. When you have completed the letter, the Managing Partner will review your responses and from there it will be sent to the client. 

REQUIRED:

Please write a letter in your own words to Ms Lief explaining the following:
•    Given Ms Lief’s requirements, which inventory system would best suit The Heavenly Scent inventory requirements?    
•    In order to justify your answer, please provide at least two key benefits of using the inventory system you have identified above. 
•    Does dividing up the storage space have any impact on reporting rent in the Income Statement? If so, what impact does it have?     

ANSWER THIS QUESTION USING THE PRO FORMA PROVIDED

REQUIRED:

a)    Prepare a Statement of Cash Flows using the pro forma provided on the following page. You must show all calculations (answers without supporting calculations will receive zero marks).    
b)    The owner of Caddy Shack (Juan Wood) thinks you have done a terrible job and cannot understand why his reported profit was so much higher than his increase in cash.  
Explain to Juan at least two factors that may be causing this apparent discrepancy.

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