You are finalising financial reports for a client for the year ending 30 June 20

Question

You are finalising financial reports for a client for the year ending 30 June 2017. The client is a growing business called Sophie's Sports and Personal Training. Income is generated by both selling sports equipment and the provision of personal training services of which some are outsourced. The owner, Sophie, has the office manager prepare the financial reports with the assistance of a first year undergraduate accounting student undertaking an internship with the firm. Unfortunately, the office manager has not studied accounting and believes they made a number of mistakes when preparing the end of year financial reports. Sophie has asked you for assistance in finalising the financial reports (and wants you to apply the rules of accrual accounting in preparing the reports). You are given all of the information used to prepare the financial reports for the year ending 30 June 2017. Disregard all taxes including GST and PAYG for this question. During your initial investigation you have identified the following issues which may (or may not) require further action: l. The business has a loan of S 12,000 at a rate of 10% per annum. Interest is payable as a lump sum on 1 August every year. No entries in relation to the interst have been made at 30 June 2017 An amount of $7,000 was paid for insurance on the 1st of May for the coming 12 months. The office manager recorded a DR of $7,000 against prepaid insurance and a CR of $7,000 against cash at bank. No other entries have been made in relation to this item 3. All office staffork Monday to Friday. Total fortnightly wages are $11,040 (six staff euch paid $1,840). ofice staff wages had been paid and recorded on the h and 21" of June 2017. All employees who work are paid on the 7th and 21" of June for work done up to and including the h and 21 of June respectively. Staff do not work weekends. No other entries have been processed relating to wages in June 2017

Explanation / Answer

Adjustment entries

date

explanation

debit

credit

30-Jun

interest expense

1100

interest payable

1100

30-Jun

insurance expense

1166.67

prepaid insurance

1166.67

30-Jun

wages expense

6624

wages payable

6624

Adjustment entries

date

explanation

debit

credit

30-Jun

interest expense

1100

interest payable

1100

30-Jun

insurance expense

1166.67

prepaid insurance

1166.67

30-Jun

wages expense

6624

wages payable

6624

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