Beatty 2021 4N Prelim P2

1 2024 4N Diagnostic Assessment – Beatty 2021 4N Prelim Answer all questions. 1 Aliaesoon Legal Co. is a business that provides legal consultancy services. The following balances were extracted from the books of the business on 31 July 2021: $ Cash at bank 6 630 Credit Cash in hand 3 300 Rental income 30 000 Trade receivables 4 480 Allowance for impairment of trade receivables 3 120 Drawings 15 800 Fixtures and fittings 35 200 Accumulated depreciation of fixtures and fittings 2 100 General expenses 5 690 Motor vehicles 92 100 Accumulated depreciation of motor vehicles 9 000 Building 638 000 Insurance expense 4 800 Interest on mortgage loan 8 000 Legal fee revenue 89 330 10% Mortgage loan repayable 2027 367 000 Capital 351 180 Utilities 990 Wages 50 000 Additional information 1. Included in the legal fee revenue was an amount of $24 330 received in advance. 2. Rental income of $2 400 was earned but not yet collected. 3. Utilities, $250, was paid in advance. 4. A review of the trade receivables balance showed that 10% may be uncollectible. 5. Payment for interest on the mortgage loan $1 175, was owing. 6. One-quarter of the mortgage loan is to be repaid on 30 April 2022. 7. The building is to be depreciated at 1% per annum using the straight-line method. 8. Fixtures and fittings are to be depreciated over the useful life of 5 years on a straight- line method. 9. The motor vehicles are to be depreciated at 20% per annum using the reducing- balance method.

2 REQUIRED (a) Prepare the statement of financial performance for the year ended 31 July 2021. [8] (b) Prepare the statement of financial position at 31 July 2021. [12] [Total: 20] 2 The financial year of Edison Trading ends on 31 July. The following information was extracted for the year ended 31 July 2021. 1 On 1 August 2020, the rental income received in advance account had a balance of $2 780. 2 During the year, the business received a cheque of $155 530 as rental income. 3 Annual rental income for the year ended 31 July 2021 amounted to $165 000. REQUIRED Prepare the following: (a) Journal entries to account for rental income for the financial year ended 31 July 2021 including the closing entry. Narrations are required. [8] (b) An extract of the statement of financial performance for the financial year ended 31 July 2021. [1] (c) An extract of the statement of financial position as at 31 July 2021. [1] (d) Explain the effects on profit for the year and current assets if the rental income receivable was not adjusted. [2] (e) Explain the accrual basis of accounting behind the accounting of income and expenses. [2] [Total: 14] [Turn over

3 3 Beng sells electrical appliances. Details from the cash at bank a