Accounting

BCO114 ACCOUNTING I Task brief & rubrics

Task: Test 2 Assignment 15% of total value

You are asked to answer all the questions in the proposed two cases.

This task assesses the following learning outcomes:

• Identify the steps in the accounting cycle

• Demonstrate understanding of the balance sheet and the accounting equation

• Apply acquired knowledge and skills to prepare an income statement and a statement of retained earnings.

LAUNCH: WEEK 10 / DELIVERY: APRIL 20th, 2020, 23:59HRS ON MOODLE

Submission file format: Word document with all the answers.

CASE 1 (100 points)

Digital Wizards sells computer peripherals. At December 31, 2018, the company’s inventory amounted to $800,000. During the year 2019, the

company made only one purchase and two sales. These transactions were as follows:

January 17. Purchased merchandise from PC Universe. The price of the merchandise was 340.000, discount terms 2/10; n/40

February 15. Paid the accounts payable to PC Universe.

March 25. Sold merchandise to Best Buy for $450.000 who paid cash. The cost of these items was $210.000

December 18. Sold equipment to Shore Pharmaceuticals for $525.000. The cost of said equipment was $330.000, with discount terms 3/10; n/60.

Said invoice was still unpaid at December 31, 2019

Instructions

a. Prepare journal entries to record these transactions, assuming that Digital Wizards uses a perpetual inventory system. Provide with a developed explanation of the different entries and a justification of the amounts recorded. (10 points for the entries, 10 points for the explanations)

b. Compute the ending balance in the Inventory account at the close of business on December 31. Explain your answer. (5 points for the entries, 5 points for the explanations)

c. Prepare the company’s income statement for the year 2019 taking into account that the remaining expenses of the company during the whole year amounted to 90.500 (10 points). Explain the different entries of the income statement and in particular the effects of the discount terms on the operations where applicable (20 points).

d. Explain the main differences between the perpetual and periodic inventory system and record the transactions using a periodic inventory system (10 points for the entries, 10 points for the explanations)

e. Prepare the company’s trial balance at January 1, 2020 taking into account a Balance sheet at January 1, 2019 as follows: (20 points):

Rubrics

Digital Wizards Balance Sheet

January 1, 2019

Cash 635.000

Inventory 800.000

Equipment 90.000

Accumulated depreciation Equipment -90.000

Land 203.000

Building 85.000

Accumulated depreciation Building -85.000

Capital 1000.000

Retained earnings 638.000

Total 1.638.000 1.638.000

Descriptor

9-10 The student demonstrates an excellent understanding of the concepts.

8-8.9 The student demonstrates a good understanding of the concepts.

7-7.9 The student demonstrates a fair understanding of the concepts.

6-6.9 The student demonstrates some, but insufficient understanding of the concepts.

3-5.9 The student demonstrates insufficient understanding of the concepts. They may mention some relevant ideas or concepts, although it is clear that the relationship between them is not understood by the student.

1-2.9 The student demonstrates insufficient understanding of the concepts and does not mention any relevant ideas or concepts.

0 The student leaves the question blank or cheats.

Points are at the end of each question.