Your Friend Tony has Decided Recently to Create a New Business in the Clothing Industry: Accounting Assignment, OC, Canada

University Ontario College (OC) Canada
Subject Accounting

Assignment Brief:

Your friend Tony has decided recently to create a new business in the clothing industry called Tony T-Shirts. Knowing that you have taken an accounting course at Bishops University, he hired you as the company’s accountant. Answer the following questions.

QUESTION 1

Tony is not sure what kind of legal entity he should choose to set up his business. He thinks that proprietorship would be the best in his situation. Tony has another company called Tony Restaurant.  He wants to be sure that his personal belongings and restaurant will not be at stake if Tony T-Shirts goes bankrupt or has any liquidity problem. Are you agree with him? If not, what would you recommend?

Recommend a legal entity:

Name two advantages of this type of entity.

Advantage 1:
Advantage 2:

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QUESTION 2

Tony is confused with financial accounting and tax accounting. Explain the differences in the three following areas.

Objective:
Document issued:
Timeliness:

QUESTION 3

Here are some transactions for the first month of Tony T-Shirts. Explain how to record these transactions.

January 1: Tony created the company by investing $10,000 cash in exchange for20,000 common shares.

UP/DOWNACCOUNT NAMEAMOUNT

January 1: The company paid in advance $600 for an insurance policy.

UP/DOWNACCOUNT NAMEAMOUNT

January 10: A customer named Monika paid $500 in advance for ten personalized shirts at $50 each. Tony accepted the money and told Monika that her shirts would be ready in a few weeks.

UP/DOWNACCOUNT NAMEAMOUNT

January 4: The company bought $200 of office supplies paid cash.

UP/DOWNACCOUNT NAMEAMOUNT

January 15: Tony granted a 600$ loan to an employee in exchange for a note receivable.

UP/DOWNACCOUNT NAMEAMOUNT

January 20: Paid $200 cash for publicity done during the month.

UP/DOWNACCOUNT NAMEAMOUNT

QUESTION 4

Knowing that you had to do adjusting entries at the end of the month, you got the following information. Provide the related adjusting entry for January 31.

The employee note receivable is a3-month, 10% note receivable. Interest is payable at the end of the three months.

UP/DOWNACCOUNT NAMEAMOUNT

A physical count of supplies shows that 50$ remaining at the end of the month

UP/DOWNACCOUNT NAMEAMOUNT

Five personalized shirts ordered by Monika were delivered on January 31. The cost of these shirts were $40 each.

UP/DOWNACCOUNT NAMEAMOUNT

The insurance policy is effective January 1st and will last six months.

UP/DOWNACCOUNT NAMEAMOUNT

QUESTION 5

During his second month of operations, Tony purchased a new shirt model with a picture of a famous singer named Nath Winter. He did the following purchases:

Feb 8: 2 shirts paid $40 each.

Feb 12: 5 shirts paid $42 each.

Feb 18: 3 shirts paid $46 each.

On Feb 20, the company sold five shirts for $60 each.

  1. Calculate the cost of goods sold (COGS), assuming the company uses the FIFO method.
  2. Calculate the inventory on Feb 28, assuming the company uses the FIFO method.
  3. Calculate the cost of goods sold (COGS), assuming the company uses the average method.
  4. In the context of rising costs, which method gives the highest inventory value?

QUESTION 6

Tony prepared the balance sheet of his restaurant by himself, and he asked you to revise the presentation. Identify five mistakes and explain how to correct them.

TONY RESTAURANT

as at December 31, 2018

ASSETSLIABILITIES
   Accounts Payable8,300
   Land40,000Unearned Revenues3,000
   Equipment138,000   Short term portion of bank loan1,500
Accumdepr(35,600)12,800
142,400
Bank Loan13,500
   Cash25,200TOTAL LIABILITIES26,300
   Accounts Receivable14,200
   Supplies200EQUITY
   Prepaid Insurance2,000   Common Shares34,200
41,600   Retained Earnings123,000
   Dividends500
TOTAL ASSETS184,000TOTAL LIABILITY+EQUITY184,000

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