Assessment Instructions

 

This assignment is a compulsory component of your assessment for this unit. This assignment contains SIX (6)

questions and you must answer all questions.

Large Mart has previously attempted to develop a “study pillow” which would have allowed

stu entsto upload study materia into their brain whilst sleeping. However, Large Mart has recently discovered that an American company

called Bpple already holds a patent for thistype of device. As a result, Large Mart has given up on its development attempts and decided to

sell the Bpple product, which is called iSLEEP.

In order to sell the iSLEEP, Large Mart has rented a second store in Armidale. The

renting contract is for a period of 6 month, with the possibility to extend the contract by a further 3 month. Large Mart signsthe renting f

contract on the 1 May 201 x. The rent for the store will be $10,000 per month, and rent payments will be made by bank transfer at the end of

each month.

As soon as the renting contractfor the new store is signed, Large Mart employstwo UNE students (Chuck and Morgan) to get

students interested in the iSLEEP by using it in the UNE library to study for their exams. Chuck and Morgan will later work for the store as P

shop assistants and they are payed $30 for each hour of work (this includestheir work in the store and the time they spend using the iSLEEP z

in the library to study for their exams). In May 201 x Chuck spends 60 hours studying for his exams and Morgan spends 100 hours studying for

his exams. Howev er, Chuck and Morgan will not be paid for their work until the end of June.

The interior of the new store is designed in

China and manufactured in the United States ofAmerica. An important part of the store design is a big bed on which customers can lie to

test the iSLEEP. The bed is delivered on the 1 June 201 x. On that day, Large Mart also receives an invoice of $30,000 from the Chinese

designers of the bed as well as an invoice of $5,000 from the American manufacturer. The truck driver who delivered the bed also left an

invoice of $1,000 (which consists of $500 for transportation services and $500 for assembly of the bed). Large Mart pays all three inv oices

on the 10 June 201 x through a bank transfer. As part of this payment Large Mart claims an early payment discount of $500 from the invoice of

the manufacturer of the bed.

After the new store is completed, Large Mart orders 250 iSLEEPs from Bpple for a price of $700 per item, and

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these iSLEEPs arrive on 1 June 201 x, and are paid via bank transfer on the same day.

After this initial purchase, the following purchase

and salestransactions take place within the new store:

On 2 June 201 x UNE purchases 100 iSLEEPs for the library for a price of $3,000

per iSLEEP on credit. Two days later UNE noticesthat the Library does not hav e sufficient space for all 100 iSLEEPs and asks Large Martto

return 50 unused iSLEEPs. Large Mart allows UNEto return the 50 excess iSLEEPs and returnsthem to the Inventory of the store. UNE then

paysthe remaining iSLEEPs on the 6 June 201 x, after deducting an early payment discount of 10% from the invoice.

On 15 June 201 x arge

Mart receiv es a new shipment of 500 iSLEEPs for a price of $600 per iSLEEP. The invoice for the received iSLEEPs is paid (via bank transfer)

3 days after the iSLEEPs are received.

On 18 June 201 x, Larg1e Mart starts an end of financial year sale. On the 19 June 201 x LaIrEgDe Mart

sells 100 iSLEEPsto t e University of Western Sydney (UWS). UWS purchasesthe iSLE s on creditfor a price of $2,500 per item (before any

discounts). Because UWS is a very good customer of Large Mart, UWS receives a v olume discount of $100 per iSLEEP atthe time UWS pays for

the purchased iSLEEPs. Payment is made via bank transfer 10 days after the purchase.

At the end ofJune 201 x (which is also the end ofthe

financial ear Lar-_e Mart finds out that Bo ale will startto sell a new v e_rsion of the iSLEEP called the iSLEEP2 earl in Jul 201x.As a
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invoice of $1,000 (which consists of $500 for transportation services and $500 for assembly of the bed). Large Mart pays all three inv oices
on the 10 June 201 x through a bank transfer. As part of this payment Large Mart claims an early payment discount of $500 from the invoice of

the manufacturer of the bed.

After the new store is completed, Large Mart orders 250 iSLEEPs from Bpple for a price of $700 per item, and

these iSLEEPs arrive on 1 June 201 x, and are paid via bank transfer on the same day.

After this initial purchase, the following purchase

and salestransactions take place within the new store:

On 2 June 201 x UNE purchases 100 iSLEEPs for the library for a price of $3,000

per iSLEEP on credit. Two days later UNE noticesthat the Library does not hav e sufficient space for all 100 iSLEEPs and asks Large Martto

return 50 unused iSLEEPs. Large Mart allows UNEto return the 50 excess iSLEEPs and returnsthem to the Inventory of the store. UNE then

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paysthe remaininE iSLEEPs on the 6 June 201 x, after deducting an early payment discount of 10% from the invoice.

On 15 June 201 x arge

Mart receiv es a new shipment of 500 iSLEEPs for a price of $600 per iSLEEP. The invoice for the received iSLEEPs is paid (via bank transfer)

3 days after the iSLEEPs are received.

On 18 June 201x,Larg1e Mart starts an end of financial year sale. On the 19 June 201 x LaIrEgDe Mart i
sells 100 iSLEEPsto t e University of Western Sydney (UWS). UWS purchasesthe iSLE s on creditfor a price of $2,500 per item (before any

discounts). Because UWS is a very good customer of Large Mart, UWS receives a v olume discount of $100 per iSLEEP atthe time UWS pays for

the purchased iSLEEPs. Payment is made via bank transfer 10 days after the purchase.

At the end ofJune 201 x (which is also the end ofthe

financial year), Large Mart finds out that Bpple will startto sell a new v ersion of the iSLEEP (called the iSLEEP2) early in July 201x.As a

result, Large Mart believesthat all iSLEEPsthat are currently in store can only be sold if the sales price is immediately reduced to $500 5
per iSLEEP.

On 1 July 201 x, Large Mart leases a company car for the service department of the Bpple store (called the “Nerd Herd’).

The duration of the ease is8 years, and the car has an expected useful life of 9 years. The lease contract requires Large Mart to pay

$5,000 at the time the lease is signed. This payment is made via a bank transfer. Afurther $8,000 must be paid (also via bank transfer) on

the 30 June of each year, starting on the 30 June 201x+1. The lease contract states that Large Mart can cancel the lease at any time during
the lease period, but that Large Mart must pay a fine equal to 85% of the remaining lease liability if the lease contract is cancelled. The

interest rate implicit in the lease is 10%. Large Mart decided to enter into the lease agreement instead of purchasing the car because the

purchase price would have been $47,800, and Large Mart did not have sufficient cash resourcesto make such a purchase at that time.

The

car is depreciated using the same depreciation method that is used for all other Large Mart motor v ehicles (see Large Mart Depreciation

Schedule in Topic 2). Large Mart expectsthatthe residual v alue of the car at the end of the useful life will be $500. The lease contract

also includes a clause that allows Large Martto purchase the car atthe end of the lease term for a price of $400. At that time the fair

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value ofthe car is expected to be $1,000.

IMPORTANT NOTE: Large Mart has decided to use the exemption rules outlined in AASB 16,

paragraphs 5-8 for leased items to which these exemptions apply.
IMPORTANT NOTE: Large Mart has decided to use the exemption rules outlined in AASB 16,
paragraphs 5-8 for leased items to which these exemptions apply.

Please answer the following questions aboutthe scenario outlined

above:

Question 1) Provide all journal entriesthat are necessary in the books of Large Mart to account for the signing of the renting

contract (if any) and the payment of rentfor the month of May 201 x, and provide a detailed explanation why you hav e chosen the accounting

treatmentthat you have used (1 mark).

Question 2) Calculate the cost of the bed and provide all journal entriesthat are necessary in

the books of Large Mart to accountfor the receipt and payment of the inv oices for design, manufacture and delivery/assembly of the bed, and

provide an outline and explanation for all necessary calculations (1 .5 mark)

Question 3) Provide all journal entriesthat are necessary

in the books of Large Martto account for all purchase and salestransactions (including the payment and receipt of funds) of the new store,

assuming that Large Mart uses a perpetual inventory system on a first-in-first-out basis (4 marks).

Question 4) Calculate

Cost-of-Goods-Sold and the closing balance of the Inventory -Trade/Sales account for the year ended 30 June 201 x of the new Large Mart

Store (based on the information provided in this assignment ONLY), determine if the release of the iSLEEP2 will hav e any impact on the

closing balance of the lnv entory -Trade/Sales account, explain your decision, and provide all journal entriesthat are necessary in the

books of Large Martto account of this impact (if any exists) (3.5 marks).

Question 5) Determine whether the lessor of the company car

will be required to apply the accounting regulations for operating leases or finance leases AND PROVIDE A DETAILED EXPLANATION FOR YOUR
DECISION (2 mark).

Question 6) Provide all journal entriesthat are necessary in the books of Large Mart to record the inception of the

lease for the car, the lease payments made at the end of the first year of the lease term (30 June 201 “3 and the depreciation of the

leased car for the month ended 31 July 201 x (if any depreciation IS required) (3 marks). YOU MUST PR VIDE DETA LS OF ALL NECESSARY
CALCULATIONS!
Remember that you MUST use the account names and numbers in the Large Mart Chart ofAccounts when answering this

assignment!