John has started his second year of the BAS at York University. John was not interested in
Question:
John has started his second year of the BAS at York University. John was not interested in working for others so he decided to start his own business with what is his passion: be a DJ in parties. A family friend that works as a lending officer in one of Canada's largest banks explained to him how the business plan has to be presented so he can get some financing.
On January 1st 2017 John decided to set up a company to formalize his DJ services he has been providing during last year on an informal and sporadic basis. On January 3rd he submitted the business plan to the bank asking for a start up loan of $25,000. On January 5th John sets up his company: Music on Wheels Ltd with a capital of 30,000 shares valued at $1 each. A lawyer produced all the needed paperwork.
On January 6th John opens a bank account under the name of Music on Wheels and on January 7th John transfers ownership of his van to the company. The van has a fair market value of $5,000 and is estimated to last for 50 months and then discarded. On the same day John signs the insurance contract for the van and the music equipment that is about to purchase. The insurance premium for the van is $2,400 per year and for the equipment is $1,200 per year.
On January 10th John deposited $15,000 of his personal savings in the newly opened chequing account of his company. On the same day the bank loan is approved and $25,000 is deposited in the bank account.
The following is a list of transactions that occurred during the first month of operations of "Music on Wheels":
January 11th Completed the purchase of upgraded music equipment for $18,000; also $700 worth of music files were purchased from the same shop. 50% was paid in cash, the other 50% will be paid in 30 days. The music equipment will be used during 24 months with no resale value at the end, while the music files are expensed immediately as music hits have a short life.
January 12th Great start of business being the DJ of a fundraising event of a large international charity. Got a cheque of $1,000 for his services and $2,000 in account to be collected on Jan 31st.
January 14th Paid a local radio $3,000 for 90 days of advertising starting on January 15th.
January 19th Provided the music for two small events. One promised to pay the $300 of Feb 7th, while the other will pay the $300 by the end of January.
January 20th Hired a car painter to freshen up the look of the van he uses to transport the equipment (this will not change the value or the useful life of the van). The work is completed in 2 days (Jan 21st and 22nd). John paid $200 on January 20th and promised to pay the rest ($700) on Feb 20th.
January 20th Provided services in an afternoon event at a local church. John collected $200 for all his services.
January 20th Paid $600 of insurance for the months of January and February ($300 for each month).
January 23rd Paid for gasoline on the van for $80. Also did an oil change and changed the wipes for a total of $100 that included labour and tax.
January 24th Ordered 200 personal cards and 100 brochures. Total cost $300.
January 26th One big event was serviced. The bill of $2,000 was paid 50% before the beginning of the event and the rest in 30 days.
January 27th Small event was serviced collecting $300 in cash for all fees at the end of the event.
January 28th Purchased in account music files with the last hits for $90.
January 29th Received the bill from the lawyer that helped him to set up the company for $1,800 payable by February 15th.
January 30th Received a deposit of $1,000 for servicing a wedding in March. The bride wanted to reserve the date and make sure her party will be the only one that night for Music on Wheels.
January 30th Collected the cards and brochures and paid the total. In two days, Jan 30th and 31st, he has distributed 50 personal cards and 25 brochures.
January 31st Collected $2,000 from the event on January 12th and got a phone call indicating the $300 owed for the January 19th event will be paid sometime in February.
Additional information
January 31st The online bank statement for the month of January shows bank fees of $30.
January 31st The phone bill for $80 was received for the month of January - payment due February 8th.
January 31st If possible pay dividends to himself of $0.10 per share.
Prepare "T" Accounts in ACCRUAL and CASH basis for this case using the following chart of accounts, when relevant, prepare the Income statement, Statement of Retained Earnings and Balance Sheet and then answer the questions.
Question 1:
What is the amount of Prepaid Office Supplies or Office Supplies at Hand for the date ending January 31? Use cash accounting.
a. more than $300
b. between $251 and $300
c. between $101 and $250
d. $0
e. between $1 and $100
Question2:
What is the amount of Prepaid Advertising for the date ending January 31? Use cash accounting.
a. $0
b. between $1 and $2,000
c. more than $3,000
d. between $2,501 and $3,000
e. between $2,001 and $2,500
Question 3:
What is the total amount of dividends payable at the end of January? Use accrual accounting.
a. less than $100
b. between $2,501 and $3,000
c. more than $3,000
d. between $2,001 and $2,500
e. between $100 and $2,000
Question 4:
What is the total amount of Accounts Payable that "Music on Wheels" owes as of January 31 after AJE? Use accrual accounting.
a. less than $10
b. between $2,001 and $5,000
c. between $10 and $2,000
d. between $5,001 and $9,500
e. more than $9,500
Expert Answer:
