Nour Youssef operates as a sole trader. Below is a trial balance extracted from her books as at 31 December 2020.

Trial balance for Nour Youssef as at 31 December 2020

	Debit	Credit
	£ _ .	£
Sales revenue		685,000
Inventory (as at 1 January 2020)	95,800
Purchases	624,200
Non-current assets at cost:
Equipment	100,000
Motor vehicle	110,000
Accumulated depreciation:
Equipment		20,000
Motor vehicle		10,000
Insurance	14,700
Rent	30,000
Heating and lighting	10,000
Salaries and wages	40,000
Motor expenses	15,300
Miscellaneous expenses	28,000
Receivables	100,000
Allowance for receivables		4,000
Payables		100,0 00
Cash	71,000
Bank loan		100,000
Capital		320,000
Total	1,239,000	1,239,000

Additional information is provided for use in preparing the company’s adjustments:

1. The value of closing inventory is £90,000.
2. On November 1, Nour Company borrowed £100,000, at 6% annual interest, from the National Bank. Nour has 120 days before the first payment is required.
3. Nour has paid her rent until 31 May 2021. Her annual rent is £24,000.
4. Office equipment has a useful life of ten years and a residual value of £0. It is to be depreciated by 20% on reducing balance basis.
5. The motor vehicle has a useful life of eight years and an estimated residual value of £30,000.
6. Nour finds that receivables of £8,000 need to be written off as irrecoverable.
7. The allowance for receivables is to be set at ten per cent of the remaining outstanding receivables as at 31 December 2020.
8. The heating bill will arrive on 7 January and about £3,000 is expected to relate to the period until 31 December.

Required:

1. Make the end-of-period adjustments entries (7.2 Marks)
2. Prepare Nour’s income statement for the year ended December 31, 2020. (7 Marks)
3. Prepare Nour’s balance sheet as at December 31, 2020. (6.8 Marks)
4. How do the adjusting entries differ from other journal entries?? Explain why adjusting entries are needed. (5 Marks)

(26 marks)

B- The following transactions occurred in ABC Company:

1. The accrued salaries at December 31,2020 amounted to $840, The accountant made an adjusting entry by debiting salaries expense $480 and crediting Accrues Salaried $490.

2. The accountant recorded $900 Depreciation Expense on store equipment as follows:

Dr. Depreciation Expense 900

Cr. Cash 900

Required:

Show the effect of each entry on the financial statements separately. (Correcting entries are not required). (6 marks)

C- The following information pertains to Nour publishing Company:

1- Equipment was purchased on September 1, 2014 for $420,000. It is estimated salvage value is $60,000 and it is estimated useful life is 5 years. After the 5 years the equipment was sold for $60,000.

2- Building was purchased on January 1, 2018 for $600,000. It is useful life is 20 years and depreciated on a reducing balance rate of 10%.

3- On March 31,2019 ABC, Inc. paid Nour Publishing Company $31,680 for a 3-year subscription for five different magazines. The subscriptions started immediately. The payment was recorded by Nour company to the Revenue account.

4- On December 31, 2019 the balance of Receivables was $330,000 and the balance of Allowance of irrecoverable receivables was $42,000. Before adjusting the accounts, Nour finds that receivables of $30,000 need to be written off as irrecoverable, and the allowance for receivables is to be set at ten percent of the remaining outstanding receivables as at 31 December 2019.

Required:

1- Prepare the necessary adjusting entries at December 31, 2019.Show your calculations.

2- Prepare a partial income statement and a partial balance sheet for the year ended December 31,2019 to show the effect of the adjusting entries on these statements (Show you computations and explanation)

How do the adjusting entries differ from other journal entries? Explain why adjusting entries are needed.

Answer rating: 100% (QA)

Answer Payable 300000 given Computation 1 Inventory beg 9580000 Add Purchases 62420000 Total Inventory 72000000 Less Inventory end 9000000 Cost of Goo... View the full answer