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HC1010: Predisco Accounting Assignment - Holmes Institute
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Internal Code: MAS4951
Adjusting entries information
Using the following information, you will record end of month adjustments:
Predisco Accounting Assignment: Scenario
Question: You are working for the temporary accounting employment agency known as Accomp. Today you have been asked to work at the Royal Institute of Music, a new music school that operates in inner-city Melbourne and is owned by Olivia Lederman. Your task here is to complete the accounting cycle for the Royal Institute of Music for the month of June 2017. To assist you in this task, Olivia tells you to read the accounting policies and procedures of the business. Note that you will be required to follow these policies and procedures when completing the accounts for the Royal Institute of Music. Accounting policies a.Business operations: the Royal Institute of Music is set up as a sole trader based in Melbourne with Olivia Lederman as the sole owner. The business derives its main source of revenue from providing music lessons to students. All music lessons are provided by instructors who are employed on a part-time basis. Since it took a few days to set up the business, music lessons did not start until the end of the first week. Lessons can be conducted on any day of the week, including weekends. Instructors receive their wages every two weeks, after they have conducted the lessons. Olivia handles all of the administrative tasks but she does not receive a salary for her work. Instead, from time to time she makes withdrawals of capital from the business. b.Accounting cycle: The business adopts a monthly accounting cycle. c.Revenue recognition: The business recognizes revenue when music lessons are provided to customers. Any revenue received in advance is recorded as a liability. d.GST: Olivia has advised you to ignore the effect of GST. [ASIDE: This is an assumption to make the practice set easier for you to complete. In the real world, GST cannot be ignored.] e.Prepayments: The business has a policy of recording prepayments, including office supplies, as assets. At the end of the month, adjustments are made to the relevant accounts to recognise the expense incurred during the accounting period. f.Property, plant and equipment: Property, plant and equipment items are depreciated over their estimated useful life using the straight line method to calculate the depreciation charge. Depreciation is allocated on a monthly basis. g.Long-term liabilities: The business obtained an interest only loan of $198,000 from Earth Bank on 1 June 2017 at a simple interest rate of 6% per year. The first interest payment is due at the end of August 2017 and the principal on the loan is due on 1 June 2022. h.Withdrawals: Withdrawals from the business by Olivia Lederman are recorded using the Withdrawals account. Accounting procedures the Royal Institute of Music adopts a manual accounting system and uses the general journal for the recording of individual transactions. These transactions are journalised at the end of the month with the date of each entry being the actual transaction date. After all transactions have been recorded in the general journal, the next step is to post transactions from the general journal to the general ledger with the posting date being the date when each of these transactions occurred. Transactions You will record the following transactions as you complete the books for June. This whole list of transactions is to be journalised on one page. You will be given a separate page in which to post the journal entries.| Date | Description |
| 1 | Olivia Lederman invested $109,000 cash into the business. |
| 1 | Purchased Music Equipment for $57,000 cash. |
| 1 | Paid $7,200 for the next two month's advertising. |
| 1 | Obtained a long-term loan of $198,000 from the Earth Bank. |
| 2 | Purchased approximately two months worth of office supplies on credit for $2,800 from Black label. |
| 2 | Received $3,200 in cash from Carrie O'Key for music lessons provided on that day. |
| 6 | Paid $200 for a non-refundable account set-up fee to the telephone provider. |
| 8 | Provided $7,400 of music lessons on credit for KB Lo-Fi. |
| 9 | Received $4,700 cash from Dan Soul for future music lessons. |
| 18 | KB Lo-Fi paid $3,100 in partial payment of their account. |
| 18 | Paid staff wages of $6,600 for the period up to and including yesterday. |
| 21 | Olivia Lederman withdrew $1,000 cash from the business. |
| 24 | Made a partial payment of $1,400 for office supplies purchased on 2 June. |
| 24 | Received a cash payment of $6,800 from students for music lessons provided on that day. |
| 29 | Provided $11,500 of music lessons to Dan Serr on credit. |
- Music Equipment owned by the business: original purchase price was $57,000, estimated useful life was 6 years, and estimated residual value was $8,500 at the end of the useful life. Depreciation is calculated on a monthly basis using the straight line method. The monthly depreciation charge is calculated as the yearly depreciation expense divided by the number of months in a year.
- A number of music lessons totalling $4,500 were provided during the month of June for Mel O'Dius but not yet invoiced.
- The estimated telephone bill payable as at the end of June is $120.
- Instructors work every single day during the week including weekends and are paid on a periodic basis. Wages were last paid up to and including June 17. Wages incurred after that day (from 18 June to 30 June inclusive) are estimated to have been $600 per day.
- Interest expense incurred during the month of June but not yet paid to Earth Bank for the bank loan is $990.
- Provided $2,350 worth of music lessons during the month of June in relation to the cash received in advance from Dan Soul on 9 June.
- A stocktake of office supplies at the end of the month shows that the business has $868 of supplies on hand.
- $3,600 worth of prepaid advertising was consumed in June.