SP3 2014-Mark Davies has started a lawn mowing business (MD Lawnmowing)

Question 1Mark Davies has started a lawn mowing business (MD
Lawnmowing) as a temporary job/business which he intends to run until he starts
his business degree at the University of South Australia in four months.Mark
has never owned or run a business before. To start the business on 1 March
2014, he deposited $2,400 into a new bank account opened in the name of the
business. The $2,400 consisted of a $2000 loan from his father and $400 of his
own money. Mark rented some equipment, purchased supplies, and hired friends to
mow and trim his customer’s lawns.At the end of each month Marksent invoices to his customers.
On 30thJune, he was ready to dissolve the business and start hisuniversity
studies. As he was so busy, he kept few records other than his cheque book and
a list of amounts owed to him by customers.At 30June, Mark’s business account cheque book shows a
balance of $1,900, and his customers still owe him $500. During the period, he
collected $4,800 from customers. His cheque book lists payments for supplies
totalling $510, and he still has fuel and supplies that cost a total of $65 on
hand. He paid his employees $2,000, and he still owes them $400 for their final
week of work.Mark rented some equipment from Kennard’s Hire. On 1 April,
he signed a six-month rental agreement on lawnmowers and paid $720 for the full
period. Kennard’s Hire will refund the unused portion of the prepayment if the
equipment is in good order when he returns it. In order to get the refund, Mark
has kept the equipment in excellent condition. In fact during May paid $250 to
repair one of the mowers.To transport employees and equipment to jobs, Mark used a
trailer that he bought for $660. He believes that the period’s work used up
one-third of the trailer’s service potential. The business cheque book lists a
payment of $660 for private cash withdrawals by Mark during the period. In
JuneMark paid back a quarter of the amounthis father had lent to him.Mark estimates that he spent approximately 80 hours working
on the business during the period. He plans to recommence operations on a
similar basis during major breaks in his university study and believes he will
do better in later periods as he now has an existing customer base to work
from.Required1. Prepare the business Income Statement for the period.(9 marks)2. Prepare the classified Balance Sheet at the end of the
period.(11 marks)3. Was Mark’s venture successful?Give the reasons for your
answer. 150 – 250 words only.(5 marks)Total for Question 1: 25 marksQuestion 2Harry Smith is confused about the depreciation expense in
the accounts for his shop, Kaiken, and would like you to explain the following
to him:i) Why is depreciation charged against the income statement
for the display shelving even though Harry believes the shelving is worth more
now than when he bought it just over two years ago?[3 marks]ii) Harry is considering closing the shop in two years time
and retiring. If Harry decides to go ahead with this decision can he still
charge the same amount of depreciation expense for the shop shelving as has
been done so in the past? Use the Going Concern Assumption in answering Harry’s
question.[4 marks]iii) If Kaiken makes a loss in any year Harry wants to know
if he still has to include depreciation expense in the income statement?[3 marks]Total for Question 2: 10 marksQuestion 3Mark Thompson submits to you draft accounts for the year
ended 30 June 2014, and a Balance Sheet as at that date. Towards the end of the
financial year his accountant resigned and he had completed the records
himself. He thinks that errors may have occurred and asks for your help. An
examination of the accounting records reveals the following:http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifA.Rent expense for the premisesincludes $660 for July and
August.http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifB.A payment of $1,750 for new office furniture has been
incorrectly debited to the advertising expense account. The furniture had been
purchased on 30 June 2014.http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifC.Commission due to sales representatives for the month of
June, $2,000, has been not been paid or recorded.http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifD.Repairs to Mark’s private motor vehicle, $750, have been
debited to the vehicle expense account.http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifE.The unearned revenue account includes an amount of $350 for
services provided during June.http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifF.A fire insurance policy covering buildings was taken out on
01 April 2014, the annual premium of $960was paid in advance on this date and
debited to the Insuranceexpense account.http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifG.Interest of $960 on the loan held by the business was due,
but has not been recorded or paid.http://edugen.wileyplus.com/edugen/courses/crs6167/common/art/pixel.gifH.No depreciation has been recognised for the year ending 30
June 2014. The draft Balance Sheet shows the following:Buildings (at cost)$120,000Less Accumulated Depreciation32,000$88,000Office Furniture & Equipment (at cost)20,000Less Accumulated Depreciation8,00012,000These amounts do not include any of thetransactions listed above.Annual depreciation is to be calculated as follows: