ACCT1101 Accounting for Decision Making

ACCT1101 Accounting for Decision Making

Problem Set Assessment

Type: Problem Set/s

Learning Objectives Assessed: 1, 2, 3, 4

Due Date: 13 September 2024 15:00 (3pm Brisbane time)

Weight: 25%

Individual

Task Description:

This assessment is based on a case of a retailing business.

Assignment materials will be released two weeks before the due date.

Topic assessed: Topics 1-5.

Question types: calculations, short answers and recording transactions.

Learning objectives assessed:

1. Identify and explain accounting terms and concepts that are relevant to business decision

making.

2. Record and interpret business transactions and financial statements.
3. Apply relevant and appropriate accounting knowledge and techniques in business problem-solving.
4. Make and justify effective business operating, financing and investing decisions informed by relevant accounting information.

Assessment Scenario

This assessment is based on a fictitious scenario of a retail business. This scenario is to be used when answering questions within these assessment questions.

The full assessment scenario is provided below. Extracts of this scenario are provided throughout the assessment for easy reference when specific data is required for questions.

Lenova Digital

Introduction

Lenova Digital is a Brisbane-based company that specialises in the sale of gaming software and accessories online. Commission income only is earned from the sales in the online store. It is currently operated by Claire and Sarah. Claire is an IT specialist and Sarah is a marketing manager. They set up the business on August 1, 2018, by purchasing equipment and developing a basic website. To promote the business, they pay for advertising on Google and YouTube.

Lenova Digital also sells larger gaming items out of a warehouse that they rent. This segment of the business purchases gaming chairs, gaming desks and gaming PCs from overseas suppliers. Paul and Sam, who are employees that work in the warehouse, deliver the inventory to retail stores who purchase these items. Claire and Sarah pay themselves and their two employees a fortnightly wage.

Lenova Digital is preparing 代 写ACCT1101 Accounting for Decision Making  their financial records using an accrual accounting system. They record sales revenue at the point of delivering the goods to customers. Lenova Digital use a perpetual inventory system to track and record their inventory. The First-in, First-out method (FIFO) is used to account for the valuation of inventory and inventory movements. The straight line method is currently used for depreciation, although they are also considering the diminishing balance method for the future.

Lenova Digital pays for most regular business expenses using a corporate credit card, which they pay monthly.

Claire and Sarah have provided information about the business transactions, their key suppliers and retail customers and current warehouse inventory items for July 2023.

Suppliers

• Alliance Digital
• Gaming Accessories Co.
• Retail Store Customers

Retail Store Customers

• Gamer’s Rise
• Digital Computer Store
• BBG Games

Current Warehouse Inventory Items

• Gaming chairs
• Gaming desks
• Gaming PCs

Transactions

For all transactions, please ignore GST and assume that all transactions are in Australian dollars.

1. July 1: Lenova Digital signed another 2-year lease for a warehouse and office for $6,000 per month to store all their inventory. They have paid two months of rent in advance.
2. July 1: Sold 25 chairs for $135 each, 25 desks for $185 each and 10 PCs for $800 each to

Digital Computer Store. Delivery occurred the same day. The customer was given 90 days to pay their account.

3. July 1: Purchased new CCTV camera equipment that was installed on the same day. The total cost of $18,000 was paid in cash.
4. July 5: An order was placed for 150 gaming chairs at a cost of $80 each and 150 gaming

desks at a cost of $117 each was placed with Gaming Accessories Co. Delivery occurred the same day and the total was paid in cash.

5. July 6: An order was placed for 75 gaming PCs for $495 each from Alliance Digital. Delivery occurred the same day and the total was paid in cash.
6. July 7: Sold 50 chairs for $135 each, 50 desks for $185 each and 15 gaming PCs for $800 each to BBG Games. BBG Games has been given 90 days to pay their account and the products will be delivered to them in 7 days.
7. July 13: An order was placed for 100 gaming chairs at a cost of $75 each and 100 gaming

desks at a cost of $117 each with gaming Accessories Co. Delivery occurred the same day and the total was paid in cash.

8. July 13: An order was placed with Alliance Digital for 40 gaming PCs for $495 each. Delivery occurred the same day, and Lenova Digital have 30 days to pay their account.
9. July 14: Total commission income received in cash for the fortnight for the online store is $9,760.
10. July 14: Total wages for the fortnight were paid. This includes $2,500 each paid to Claire and Sarah and $1,800 each to Sam and Paul.
11. July 14: Delivered goods to BBG Games, following the transaction on July 7.
12. July 15: Sold 40 chairs for $135 each, 40 desks for $185 each, and 30 gaming PCs for $800 each to Gamers Rise. Delivery occurred the same day. The customer was given 90 days to pay their account.
13. July 24: Sold 100 chairs for $130 each, 100 desks for $180 each and 15 gaming PCs for

$800 each to the Digital Computer Store. Delivery occurred on the same day. The customer

was given 90 days to pay their account.

14. July 28: Total commission income received in cash for the fortnight from the online store is $9,500.
15. July 28: Total wages for the fortnight were paid. This includes $2,500 each paid to Claire and Sarah and $1,800 each to Sam and Paul.
16. July 30: A payment of $3,300 to the bank loan (inclusive of interest of $300) was made for the month of July. Note that the business considers interest as a financing cashflow.
17. July 31: A payment was made for various business expenses incurred for the month of July of $3,150.
18. July 31: Paid dividends to shareholders of $15,000.

July 2023 Adjustments at Month End (July 31)

Adjustment 1: Depreciation of assets

Lenova Digital owns four non-current assets as at July 31, 2023. Calculate the total depreciation for the month for each of the assets below using the straight-line method.

Round calculations to the nearest whole dollar.

Exhibit 1

Adjustment 2: Recognition of insurance

Lenova Digital needs to recognise the insurance related to the month of July. Insurance of

$7,650 was paid in advance for a 12-month period on 30 June 2023. Round calculations to the nearest whole dollar.

Adjustment 3: Recognition of advertising

Lenova Digital needs to recognise the advertising related to the month of July. Advertising for a 12-month period was paid to Google for $4,560 and to YouTube for $6,000 on 30 June 2023. Round calculations to the nearest whole dollar.

Adjustment 4: Wages Owing

Wages owing but not yet paid as at 31 July were $1,720. Round calculations to the nearest whole dollar.

Adjustment 5: Recognition of rent

Lenova Digital needs to recognise the rent related to the month of July. Refer transaction on July 1. Round calculations to the nearest whole dollar.

Adjustment 6: Recognition of income

On June 30, a local high school approached Lenova Digital for help. They asked Sarah to visit the school and provide them with advice on which products would be best for their students to use. They paid $2,500 in advance for Sarah to consult with them and provide a report outlining the available products. The business initially recorded unearned revenue on June 30 when the cash was received. Sarah visited the school on July 31. An adjustment needs to be made to recognise the income earned. Round calculations to the nearest whole dollar.

Part 1: Inventory calculations | Numeric entry

6 marks

Lenova Digital purchased and sold inventory throughout the month of July as shown in the

business transactions listed to the left. To record these transactions in the worksheet, the cost of these purchases and the cost of the goods sold must be calculated first. Please use the tables below to show these calculations.

The second tab of the Excel spreadsheet also includes these tables so that you can calculate them in Excel before entering them into Inspera.

These totals will be used in the worksheet.

Enter your answers in the table below using the information within the transactions.

DO NOT use a thousand separator. For example, the correct way to type “One Thousand” is “1000”, not “1,000” or “1.000”. Only enter numbers. Do not enter dollar signs ($) in the cells.

Use date format DDMMYYYY (e.g., 01032023)

Part 1: Inventory calculations

Questions 1 to 3: Inventory calculations | Numeric entry 2 marks for each table.

DO NOT use a thousand separator. For example, the correct way to type “One Thousand” is “1000”, not “1,000” or “1.000”. Only enter numbers. Do not enter dollar signs ($) in the cells. Use date format DDMMYYYY (e.g. 01072023).

Part 2: Inventory justification

1 mark.

Instructions

Part 2 of this assessment requires you to draw on the decisions you made in Part 1 Inventory calculation and explain how you calculated the numeric entries you calculated.

Question 4:

Please explain how you calculated the cost of sales for the gaming chairs on 24 July.

Select one alternative:

o The cost of sales was calculated by taking the cost of each inventory unit purchased first and multiplying it by the number of units sold. This resulted in the cost of sales of 15 chairs at $80 each and 85 chairs at $75 each.

o The cost of sales was calculated by taking the cost of each inventory unit purchased first and multiplying it by the number of units sold. This resulted in the cost of sales of 100 chairs at $75 each and 15 chairs at $75 each.

o The cost of sales was calculated by taking the cost of each inventory unit purchased first and multiplying it by the number of units sold. This resulted in the cost of sales of 85 chairs at $80 each and 15 chairs at $75 each.

o The cost of sales was calculated by finding the average cost of each inventory item purchased. This resulted in dividing $21,625 by 275 chairs to find the cost of sales per unit of $78.64.

Part 3: Inventory Items

Instructions

Part 3 of this assessment requires you to draw on the decisions you made in Part 1 Inventory calculation and explain how you calculated the numeric entries you calculated.

DO NOT use a thousand separator. For example, the correct way to type “One Thousand” is “1000”, not “1,000” or “1.000”. Only enter numbers. Do not enter dollar signs ($) in the cells.

Question 5

This question is a pooled question. Each student has been assigned a different inventory item. Please refer to Inspera to see your question.

Part 4

Question 6: Depreciation

6 marks.

Calculate the total depreciation for the month of July for each of the assets below using the straight-line method.

Round calculations to the nearest whole dollar.

Answer by stating your final answer for each cell and do not show workings.

DO NOT use a thousand separator. For example, the correct way to type “One Thousand” is “1000”, not “1,000” or “1.000”. Only enter numbers. Do not enter dollar signs ($) in the cells.

Part 4:

Question 7: Changing depreciation methods

1.5 marks.

Lenova Digital currently use the straight-line method of depreciation for their equipment, delivery truck and forklift.

i). If they changed to the diminishing balance method of depreciation for their forklift in August 2023, what would be the impact on the financial statements?

Assume the diminishing balance method resulted in the depreciation expense of $500 for the month of August 2023.

If the business changes from straight-line method to the diminishing balance method:

The depreciation expense for the forklift will be ,

The profit for August will be by the amount of $ ,

The total assets will be ,

The forklift will be ,

The total accumulated depreciation as at 31 August 2023 will be and

The forklift's carrying amount will be .

ii). Can Lenova Digital change from the straight-line to the diminishing balance method?

, accounting standards a business to choose the depreciation method for a .

Part 5:

Question 8 to Question 12: Completing the worksheet

Questions 8 to 12 requires you to record the business transactions in a worksheet. There is an optional Excel spreadsheet that you can download from Blackboard to use before filling in your responses in Inspera. Alternatively, you can put your responses into Inspera without using the Excel spreadsheet. Note: the spreadsheet does not need to be submitted and will not be used as part of the marking of the assignment.

Part 6:

Question 13: Accrual accounting

2 marks.

1. If Lenova Digital did not receive their order from Alliance Digital on January 13, would this change the way the transaction is recorded by the business?
2. If the goods were not received, Lenova Digital recognise the purchase as an in their financial statements.

Part 7:

Question 14: Doubtful debts

1 mark.

This question is a pooled question. Each student has been assigned a different allowance for doubtful debts question. Please refer to Inspera to see your question.

Part 8:

Question 15: Cash flow management

10 marks.

Lenova Digital is considering acquiring a new line of products to sell to their retailer customers. The product is an in-home gaming simulator system which includes the latest gaming chair, gaming PC with a large monitor, and a virtual reality headset. The cost per system is $6,000. The supplier requires a minimum order of 20 systems, which means the total investment in the new line of products will be $120,000. it is expected that payment will need to be made in October 2023.

Due to the large amount of investment required, the owners of Digital Field Day have determined that the financing of this purchase could be undertaken in October 2023 by either a bank loan or an additional share issue to the owners. Lenova Digital have asked you to provide them with advice regarding these financing options in preparation for Christmas.

Required

1. Identify which cash flow activity within the cash flow statement would increase as a result of the funds received by the bank loan or share issue. Word limit: a total of 50 words. Any response beyond the word limit will not be marked.
2. Provide Lenova Digital with a comparison of both options that includes consideration of any repayments, the effects on cash flows and the associated risk. Note no calculations are required. Word limit: a total of 200 words. Any response beyond the word limit will not be marked.
3. Identify which option is more likely to result in a higher net increase in cash flows within Lenova Digital’s cash flow statement for the month of October 2023 and explain why. Word limit: a total of 100 words. Any response beyond the word limit will not be marked.

Part 9:

Question 16: Payment methods

10 marks.

In preparation for the arrival of the gaming simulator systems, Lenova Digital have been informed that their staff members need to be trained on how to build the systems and integrate software. The training is estimated to cost $10,000. Lenova Digital have told you that they are considering making the payment either by using cash or the company credit card. They will be making the purchase on August 2, 2023 and training is expected to occur on September 1, 2023. The credit card would be required to be paid on September 15, 2023.

Required

2023. Provide Lenova Digital with a comparison of the effects that the use of cash versus a credit card has on total assets, liabilities, equity and the cash flows of the business for August 2, 2023. Note no calculations are required. Word limit: a total of 200 words. Any response beyond the word limit will not be marked.
2024. Identify and briefly explain one (1) other form. of payment method that Lenova Digital may be able to use to pay for the training. Word limit: a total of 50 words. Any response beyond the word limit will not be marked.
2025. Provide advice on which method Lenova Digital should use to make the purchase by drawing on the answers you provided in part a and b. When advising Lenova Digital about your decision, include reference to the company's current financial situation shown in the worksheet that you prepared in question 10 to 14. Word limit: a total of 150 words. Any response beyond the word limit will not be marked.

Part 10:

Question 17: Business structures

1 mark.

This question is a pooled question. Each student has been assigned a different business structure question. Please refer to Inspera to see your question.