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 th

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?

Name two advantages of this type of entity.

 

QUESTION 2

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

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.

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

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.

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

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

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

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.

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

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

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

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.