Questions
Permanent Press provides laundry services to hotels and hospitals. In a recent annual report, Permanent Press chronicled its contributions to community services over the past 10 years. The following excerpts illustrate the variety of services provided.
1. At a local festival, Permanent Press sponsored the event by providing T-shirts, stationery and office decorations featuring the company’s name and logo.
2. In support of the ‘Clean Up Australia’ campaign in 2020, the company donated, and its employees planted, grevillea gardens in cities across Australia.
3. The company held a competition in which customers throughout Australia and New Zealand nominated their favourite children’s charities. Winning charities in the draw received a monetary donation from Permanent Press in the name of the customer.
4. Permanent Press executives often volunteer their time and resources to serve as role models and mentors to young people in Auckland.
The entity assumption requires that a company keep the personal expenses of its employees separate from business expenses. Which of the activities listed above were expenses of the business, and which were personal expenses of the employees?
For those items that were business expenses, state whether the expense was probably categorized as an advertising expense, employee wages expense, grounds maintenance expense, or charitable contribution expense. You may use any or all of the categories
5. Holiday Travel Australasia commenced business on 1 April 2022. Alice Adare is a good manager but a poor accountant. From the trial balance prepared by a part-time bookkeeper, Alice prepared the following statement of profit or loss for the year ended 31 March 2023. Alice knew something was wrong with the statement because profit up to February had not exceeded $40 000. Knowing that you are an experienced accountant, she asks you to review the statement of profit or loss and other data. You first look at the trial balance. In addition to the account balances reported in the statement of profit or loss, the general ledger contains these selected balances at 31 March 2023.
You then make inquiries and discover the following.
6. Ling & Jessop is a retail outlet for antique books that provides a book repair service and also sells rare music manuscripts. Ling & Jessop is operated by Cam Ling and Tim Jessop. Mildred Mildew is a repair specialist who works for Ling & Jessop on a fixed salary. Revenues are generated through the sale of antique books (approximately 75% of total revenues), rare manuscripts (10%) and the repair of old books brought to the store (15%). Book sales are made on both a credit and a cash basis. Customers receive prenumbered sales invoices. Credit terms are always net/30 days. All manuscript sales and repair work are cash only.
Inventory is purchased on account from various antique book and manuscript dealers. Virtually all suppliers offer cash discounts for prompt payment, and it is company policy to take all discounts. All cash payments are made by EFT and include payments to suppliers, to transport companies for freight on inventory purchases, and to newspapers, radio and TV stations for advertising. All invoices for advertising are paid as received. Cam and Tim each make a monthly drawing in cash for personal living expenses. The salaried repair woman is paid fortnightly
Ling & Jessop currently has a manual accounting system. Cam Ling is concerned about the inefficiencies in journalising and posting transactions with the manual system. Two additional bookkeepers were employed a month ago, but the inefficiencies have continued at an even higher rate. However, Tim is old-fashioned and refuses to install an electronic accounting system.
(a) Identify the special journals that Ling & Jessop should have in its manual system. List the column headings appropriate for each of the special journals.
(b) What control and subsidiary accounts should be included in Ling & Jessop’s manual system? Why?
c) Explain why the additional personnel did not help.
(d) What changes should be made to improve the efficiency of the accounting system?
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