The bank reconciliation for Bargain

Complete the 10 questions given below. A total of 120 marks are allocated to the questions below, which will then be converted to a mark out of 60%. All workings, where appropriate, must be shown to substantiate your answers. Question 1 Internal controls Bank reconciliations and cash The bank reconciliation for Bargain Buys Ltd as at 31 July 2018 is shown below: The August 2018 bank statement showed the following withdrawals and deposits: Your assistant has highlighted two amounts on the August 2018 bank statement, which she has not yet entered into the accounting system. She thinks that she has recorded everything else. 1. A credit for bank interest received on 30/8/18 of $148.62. 2. A debit of $60.00 for bank fees on 1/8/18. Bargain Buys Ltds accounting records for August 2018 showed the following: At 31 August 2018, the bank balance as per Bargain Buys Ltds records was $17,009.60, and the cash balance per the bank statement was $25,720.92. The bank did not make any errors. Required: i)Prepare the bank reconciliation for Bargain Buys Ltd at 31 August 2018. ii) Prepare the journal entries to correct any errors made by Bargain Buys Ltd, and to record transactions that have not yet been entered into the companys accounting records. (Note: The correction of any errors relating to the recording of cheques should be made to Accounts payable. The correction of any errors relating to deposits (other than interest received) should be made to Accounts receivable.) iii) Prepare the bank ledger account (using the T-Account format) for August 2018, in order to determine the balance in the account after the above journal entries have been recorded. Question 2 Internal controls cash Hoyts Cinema Charlestown is located in the Charlestown Shopping Mall. A cashiers booth is located near the entrance of the cinema. Two cashiers are employed. One works from 2pm 6pm, and the other from 6pm 10pm. The cashiers receive cash from customers and operate a machine that ejects pre-numbered tickets. The rolls of tickets are inserted and locked into the machine by the cinema manager at the beginning of each cashiers shift. After purchasing a ticket, the customer takes the ticket to a doorperson stationed at the entrance of the cinema lobby, which is 20 metres away from the cashiers booth. The doorperson tears the ticket in half, admits the customer, and returns the ticket stub to the customer. The other half of the ticket is dropped into a locked box by the doorperson. At the end of each day, the cinema manager removes the ticket rolls from the machine and completes a cash count. The cash count sheet is initialled by the cashier who is working the final shift for that day. The manager puts the cash received into a safe located in the cinema accountants office, and gives the cash count sheet to the accountant. At the end of each week, the accountant deposits the cash takings for that week into the bank, and then records the cash receipts and bank deposit into the accounting system. Required: i) Identify the internal controls over cash receipts transactions at Hoyts Cinema Charlestown. Explain any internal control weaknesses, and suggest a change in procedure that will result in good internal control. ii) If the doorperson and cashier decided to collaborate to misappropriate cash, what actions might they take? Question 3 Introduction to management accounting You are a financial accountant at ABC Ltd, a large manufacturing company. Your boss comes to you, and tells you that he is on a cost-cutting mission. He understands the importance of your role in preparing the companys general purpose financial reports for shareholders and other stakeholders and that these reports are required by law so your job is safe. However, he tells you that he is thinking of not replacing the current management accountant who resigned last week. You are quite concerned by this plan, as you know how valuable management accountants are. He leaves your office before you get a chance to present your views. Required: Prepare a memo to respond to your boss, explaining the role and importance of management accountants, and how the reports and information prepared by management accountants differs to the general purpose financial reports that you prepare. Question 4 Decision making in accounting You are the management accountant at Bakery Delights Ltd, a business that owns 126 bakeries across Australia. The directors have asked you to undertake some research into cloud based management accounting they have heard the term cloud based management accounting used, but dont really know what it means. They would also like to know about the potential benefits and risks of moving to a cloud based management accounting system. Required: Prepare a business report (as if for the directors of the company) on cloud based management accounting. Note: You must reference using the APA referencing format, and include a reference list at the end of your report. (Word count: 1000-1400 words) Question 5 Cost volume profit (CVP) analysis During July, Heavenly Hair Salon gave 2,000 haircuts, at a price of $34 per haircut. Fixed costs for the salon are $21,000 per month, and variable costs are 60% of sales. Required: i) What is the number of haircuts that Heavenly Hair Salon must complete each month to (a) break even, and (b) make a target net income of $12,000? What net income did Heavenly Hair Salon make for July? ii)Create a CVP chart in Excel to show the results of your analysis. Show the data area, and clearly label your CVP chart. iii) In two months time, Heavenly Hair Salon will need to increase the wages paid to its employees due to an increase in the minimum award rates. The increase will cause variable costs to increase from 60% to 65% of sales. The owner of the hair salon would like to know how the wage rise will impact the number of haircuts needed each month to (a) break even, and (b) make a target net income of $12,000. Question 6 Decision making Use this page for your survey. Suppose youre on a TV game show, and youre given the choice of three doors. Behind one door is a brand new car, behind the others, nothing. You pick a door. The TV host, who knows whats behind the doors, chooses another door and opens it to show you that it has nothing. Should you change your decision? Required: A. i) Suppose youre on a TV game show, and youre given the choice of three doors. Behind one door is a brand new car, behind the others, nothing. You pick a door. The TV host, who knows whats behind the doors, chooses another door and opens it to show you that it has nothing. Should you change your decision? Dont think about this too deeply just yet. Do you feel (intuit?) that you should change your choice? Answer initially without researching the question. What is the thinking behind your answer? Conduct a survey of ten of your friends/colleagues to give their opinion. You may wish to provide them with a copy of the problem. Prepare a table in Excel, setting out the results of your survey. Also create a simple chart in Excel to present the results of your survey. ii) After you answer the first part of this question, search the Internet for the Monty Hall problem. Provide your own explanation of the correct answer. Why do so many people get the wrong answer? Did you? B. A man goes to see his medical doctor to find out whether or not he has a deadly disease. The test is positive. The test is 98% accurate and one in one thousand men of his age has this disease. What is the probability he has the disease? When this question was put to a group of student doctors, 80% of them answered 98%. He now plans to sell up all his assets, quit his job on the spot and live in Bora Bora in the time he has left. Is this a rational decision? Explain. (Hint: research conditional probability) C. Suppose an urn contains 100 marbles, 65 red and 35 black. A marble is drawn at random from the urn and you are asked to guess what colour you believe the marble to be. The marble is then shown, replaced, and the urns contents again randomised. The aim is to maximise the number of correct guesses. Before reading any further, what strategy would you employ? What would you guess? Assume that 5 red marbles come out in a row. What would your next guess be? Why? Include a brief discussion of the gamblers fallacy (Monte Carlo fallacy). D. After working through the above scenarios, what does this tell you about the rationality of human decision making? What lessons can managers learn from these scenarios and apply when making business decisions? Question 7 Relevant information and special decisions Miya Manufacturing Ltd has four operating divisions. During the first quarter of 2018, the company reported a total profit from operations of $120,000 and the following division results: Division 1 2 3 4 Sales $490 000 $410 000 $200 000 $300 000 Variable expenses 230 000 240 000 220 000 240 000 Fixed expenses 130 000 90 000 40 000 90 000 Profit/(loss) from operations $130 000 $80 000 ($60 000) ($30 000) The directors are very concerned about divisions 3 and 4, and are considering discontinuing one or both of them. The directors make the comment: if divisions 3 and 4 are eliminated, total profits would increase by $90,000. If division 3 is discontinued, $20,000 of the divisions fixed costs would be eliminated. If division 4 is discontinued, $45,000 of the divisions fixed costs would be eliminated. If both division 3 and division 4 are discontinued, there would be enough idle space to open a new division a division that the directors have previously considered, but havent had the space available to open it. If this new division is opened, the directors estimate that it could generate $65,000 in sales, generate a 20% contribution margin percentage, and have additional avoidable fixed costs of $5,000. Required: What course of action do you recommend the directors take for division 3 and division 4? Should they close division 3 or division 4? Alternatively, should they close both division 3 and division 4, and open the new division? Show calculations to support your recommendations. Question 8 Budgeting It is 31 March 2018. The directors of Electrical Goods Ltd have just received the companys income tax bill in relation to the year ended 30 June 2017 $14,500. The directors are quite concerned about whether they will have enough money in the bank to pay the income tax liability, which is due in June 2018. Budgeted sales, purchases and other expenses for April June 2018 have been prepared, alongside the actual sales, purchases and other expenses for January March 2018. Additional information: Electrical Goods Ltd expects to collect 80% of billings in the month after the sale, and the remaining 20% 2 months after. Electrical Goods Ltd expects to pay 70% of inventory purchases in the month after purchase, and the remaining 30% 2 months after. Other expenses (apart from depreciation) are paid in the same month as they are shown in the spreadsheet above. Electrical Goods Ltd maintains a minimum cash balance of $3,000 at the end of each month. If the cash balance is less than $3,000 at the end of the month, the company borrows amounts necessary to maintain this balance. All amounts borrowed are repaid out of subsequent positive cash flows. The opening balance of cash at 1 April 2018 is $3,500. Electrical Goods Ltd has no short-term debt as of 1 April 2018. Required: Enter the data shown above into a spreadsheet. In the spreadsheet, prepare a cash budget for Electrical Goods Ltd for the period April June 2018. Ignore any interest expense associated with borrowings. Note: Use formulas to generate the figures in your cash budget from your data section. Question 9 Variance analysis Amazing Aprons Ltd is a company that specialises in producing cooking aprons. Amazing Aprons Ltd has developed the following standards per finished output unit (an apron) for direct materials and direct labour. Direct materials: 1 metre at $6.00 per metre = $6.00 Direct labour: 0.5 hours as $22 per hour = $11.00 The number of finished aprons budgeted for July 2018 was 600. 500 were actually produced. Actual results in July 2018 were: Direct materials purchased and used: 550 metres, at a total cost of $3,190. Direct labour: 300 hours. Actual total cost was $5,400. Required: Calculate the price and quantity variances of direct materials and direct labour for July 2018. Provide a plausible explanation for the variances. Question 10 Capital budgeting The Pit Stop Garage is considering the purchase of a new tow truck. The garage currently doesnt own a tow truck, and the $75,000 price tag for a new truck is a big outlay for the owner. The owner, Jackson Storm, has compiled the following estimates in trying to determine whether the tow truck should be purchased: Initial cost $75,000 Estimated useful life 8 years Annual cash inflows from towing $8,400 Overhaul costs (end of year 4) $5,600 Residual value $21,000 Jacksons good friend, Lightning McQueen, stopped by. He is trying to convince Jackson that the tow truck will have other benefits that Jackson hasnt even considered: Cars that need towing need to be fixed. Therefore, when Jackson tows them to his garage, he will get more repair work, and his revenue will increase. The truck will generate goodwill. After Jackson has towed a persons car, they will be grateful and might be more inclined to use his garage in the future. The tow truck will have signage all over it free advertising as the tow truck drives around town. Lightning estimates that, at a minimum, these benefits would be worth the following: Additional annual net cash inflows from the repair work $7,700 Additional annual net cash inflows from customer goodwill $1,400 Additional annual net cash inflows resulting from free advertising $700 Jacksons cost of capital is 9% Required: i) Calculate the net present value, ignoring the additional benefits described by Lightning. Should the tow truck be purchased? ii) Calculate the net present value, incorporating the additional benefits suggested by Lightning. Should the tow truck be purchased? iii) Suppose Lightning has been overly optimistic in his assessment of the value of the additional benefits. At a minimum, how much would the additional benefits have to be worth in order for the project to be accepted?

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