Alice Started a Consulting Business “Alice Consulting” on 1 July 2020: Accounting Assignment, NUS, Singapore

Question 1

Alice started a consulting business “Alice Consulting” on 1 July 2020. During the first month of operations, she completed six transactions which resulted in the following:

All the accounts have normal balances.

Required:

1. Analyze the accounts and their balances and prepare a list that describes each of the six (6) most likely transactions and their amounts.
2. Analyze the above and prepare the necessary entries to record the transactions for July 2020. Dates and narrations are not required.
3. Analyse the above and compute the total assets, total liabilities, and total equity as of 31 July 2020. Show workings.
4. Analyze the above and compute the total cash received total cash paid and ending cash balance for July 2020. Show workings.

Question 2

Ernst Company sells electronics products. The company uses a perpetual inventory system. The following information relates to one of their electronics products for July 2020.

For the specific identification method, units sold consist of 20 units from the beginning inventory and 17 units from the Jul 20 purchases.

Required:

1. Compute the cost of inventory on hand on 31 July and the cost of goods sold for July 2020 under (i) FIFO method. (ii) Specific identification method.
2. Explain the effects of the FIFO method on the value of ending inventory and profit for July 2020.
3. Due to Covid-19, the company has not been performing well. Thus, the CEO asked the accountant to change the inventory method to report better financial performance. The CEO explained that the accounting standards allow companies to change inventory methods. The CEO added that the accountant can always switch back the inventory method when things return to normal after COVID- I 9.

Explain whether you agree or disagree with the CEO to change the inventory method for earnings management purposes. You should also discuss the impacts on the users of the financial statements.