During the current year, Tony purchased new car wash equipmentfor use in his service station business. Tony's costs in connectionwith the new equipment this year were as follows:
Cost of the equipmentï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½..$45,000
Sales tax on the equipmentï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ ï¿½...4,000
Delivery chargesï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½600
Installation and testing chargesï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½..3,000
Expenses of operating the equipmentï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½. .2,000

What is Tony's basis in the car wash equipment?

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Background
You are a junior auditor working for Forrest Gump & Co. (theFirm), an international chartered
accounting firm.
Your client, Wellness Pty Ltd (Wellness) operates the world-famousWellness Health Resort,
located in the Whitsunday Islands of northern Queensland.
While revenue from accommodation is an important factor in thefinancial success of Wellness
Health Resort, its profits are predominantly driven by the uptakeof additional services and
facilities by guests during their stay (e.g. use of the spa andwholistic health facilities, patronage
of the five restaurants and bars within the resort, and partakingin other fee-paying activities).
Wellness maintains its own website which allows guests to bookaccommodation at the resort
directly. This online booking system is monitored by thereservations team at Wellness which
consists of two full-time and three casual staff.
When a booking is made over the internet, an email is sent to thereservations team informing
them that a booking has been made. The resortâs booking system isautomatically updated at this
time. The reservations team is responsible for manually confirmingthe availability of the
accommodation, verifying the guestâs credit card details, issuingthe guest with an invoice, and
passing on the payment receipts to the accounts department. Theaccounts department then
processes the sale into the general ledger.
On a weekly basis, the junior accounts clerk in the accountsdepartment reconciles the payment
receipts, sent by the reservations team, to Wellnessâs bankstatements. The bank statements are
emailed to Wellness in PDF form each week.
Any cancellations received by the reservations team are referred tothe accounts department
which organises for the guestâs payment to be refunded in full (or50% for cancellations made
within seven days of the guestâs anticipated arrival date).

Since the internet booking system is not technically up to date,Wellness intends to engage an IT
specialist to completely upgrade the system and eliminate the needfor manual checking of
details by the reservations staff.
Based on its discussions with the previous auditors, Wellnesschanged its revenue-recognition
policy prior to the current year audit. Previously, all revenuesearned were brought to account
when bookings were made (including internet bookings). Now,Wellness recognises:
ï 50% of the accommodation at the time of booking (put to theâDeferred revenue:
accommodationâ account)
ï 50% of the accommodation seven days prior to the guest arriving(in accordance with
Wellnessâs cancellation policy) which is immediately recognised asâRevenue:
accommodationâ since this portion of the revenue is no longerrefundable to the guest.
You are currently in the planning stage of the 2014 audit.
Based on the review of the previous yearâs audit files and theinformation gathered by the
Forrest Gump & Co. audit team during the planning stage, thehead of the audit team tells you
that he intends to adopt a combined audit approach for the 2014Wellness audit.
His expectation is that all controls at Wellness are operatingeffectively. He tells you that he
intends to place a high level of reliance on the controls atWellness as he does not expect there
will be any deviations.
He has now asked you to assist with the review of the internetbooking system at Wellness.

Required:
(a) Identify and explain two (2) key risks to the financial reportassociated with the internet booking system that may lead tomaterial misstatements being undetected and/or uncorrected. Note:For the
purpose of this question, disregard any risks arising from theinterface between the internet booking system and the generalledger system.

(b) For each risk identified in (a) above, identify whether it isan inherent risk or a control risk. Explain your answer.

(c) For each risk identified in (a) above, identify one (1) keyaccount balance at risk of material misstatement as a result of therisk (i.e. two (2) account balances in all).

(d) For each account balance identified in (c) above, identify andexplain one (1) key assertion that may be affected by the risk youidentified in (a) above.

(e) Based on your understanding of the control environmentsurrounding the internet booking system, describe one (1) keycontrol that you would seek to rely on in the conduct of the 2014audit of Wellness.

(f) For the control you identified in (e) above, design anappropriate procedure to test that control.

(g) For the procedure you described in (f) above, outline theresult you would expect if you determined that the control was notreliable.

Need help with 8-11

Create financial statements by properly employing prescribedmethods in accordance with generally accepted accountingprinciples: A. Step Eight: Prepare the financial statements. Notethat you must use your adjusted trial balance to prepare the incomestatement, statement of ownerâs equity, and balance sheet. You mustcomplete these statements in this order, as there areinterdependencies among them. B. Step Nine: Complete the âClosingEntriesâ tab in your workbook by closing all temporary incomestatement amounts to create closing entries. C. Step Ten: Preparethe âPost Closing Trial Balanceâ tab for the next accountingperiod. [ACC-201-03] D. Step Eleven: Prepare the reversing entriesin the âReversing Entriesâ tab of your workbook.

Here is all of the info to go along with it:

July 1: You take $10,000 from your personal savings account andbuy common stock in Peyton Approved. July 1: Purchase $6,500 inbaking supplies from vendor, on account. July 3: Your parents lendthe company $10,000 cash in exchange for a two-year, 6% notepayable. Interest and the principal are repayable at maturity. July7: Enter into a lease agreement for bakery space. The agreement isfor 1 year. The rent is $1,500 per month, and the last monthâs rentpayment of $1,500 is required at time of lease agreement. Thepayment was made in cash. Lease period is effective July 1, 2018,through June 30, 2019. July 10: Pay $375 to the county for abusiness license. July 11: Purchase a cash register for $250(deemed to be not material enough to qualify as depreciableequipmentâuse misc. exp.). July 13: You have baking equipment,including an oven and mixer, which you have been using for yourhome-based business and will now start using in the bakery. Youestimate that the equipment is currently worth $6,000, and youtransfer the equipment into the business in exchange for additionalcommon stock. The equipment has a 5-year useful life. July 13: Pay$200 for business cards/flyers/posters/ads to use for advertising.July 14: Pay $300 for office supplies. July 15: Hire part-timehelper to be paid $12 per hour. Pay periods are the 1st through the15th and 16th through the end of the month, with paydays being the20th for the first pay period and the 5th of the following monthfor the second pay period. (No entry is required on this date; itis here for informational purposes only.) July 30: Receivedtelephone bill for July in amount of $75. Payment is due on August10. 6 July 31: Pay $2,400 for a 12-month insurance policy. Policyeffective dates are August 1, 2018, through July 31, 2019. July 31:Accrue wages earned for employee for period of 16th through 31st ofJuly (Wage calculations table provided below). July 31: Total Julybakery sales were $15,000. $5,000 of these sales are on accountsreceivable. Step Two Data (Click on the link to return to theprompt.) The following events occur in August, 2018: August 5: Paidemployee for period ending 7/31. August 8: Receive payments fromcustomers towards accounts receivable in amount of $3,800. August10: Paid July telephone bill. August 15: Purchase additional bakingsupplies in amount of $5,000 from vendor, on account. August 15:Accrue wages earned for employee from period of 1st through 15th ofAugust (Wage calculations table provided below). August 15: Payrent on bakery space. August 18: Receive payments from customerstowards accounts receivable in amount of $3,000. August 20: Paid$8,500 toward baking supplies vendor payable. August 20: Payemployee for period ending 8/15. August 22: $300 in office suppliespurchased. August 31: Received telephone bill for August in amountof $75. Payment is due on September 10. 7 August 31: Accrue wagesearned for employee for period of August 16th through August 31st(Wage calculations table provided below). August 31: August bakerysales total $20,000. $7,500 of this total is on accountsreceivable. Step Three (Click on the link to return to the prompt.)Updated Scenario: Many customers have been asking for morehypoallergenic products, so in September you start carrying a lineof hypoallergenic shampoos on a trial basis. The followinginformation relates to the purchase and sales of the shampoo: ï· Youuse the perpetual inventory method. Although you could use thefollowing valuation methodsâFIFO, LIFO, or weighted average, youchoose to use the FIFO method. Data: The following events occur inSeptember, 2018: September 1: Paid dividends to self in amount of$10,000. September 5: Pay employee for period ending 8/31.September 7: Purchase merchandise for resale. See âInventoryValuationâ tab for details. September 8: Receive payments fromcustomers toward accounts receivable in amount of $4,000. September10: Pay August telephone bill. September 11: Purchase bakingsupplies in amount of $7,000 from vendor on account. September 13:Paid on supplies vendor account in amount of $5,000. September 15:Accrue employee wages for period of September 1 through September15. September 15: Pay rent on bakery space: $1,500. 8 September 15:Record merchandise sales transaction. See âInventory Valuationâ tabfor details. September 15: Record impact of sales transaction onCOGS and the inventory asset. See âInventory Valuationâ tab fordetails. September 20: Pay employee for period ending 9/15.September 20: Purchase merchandise inventory for resale tocustomers. See âInventory Valuationâ tab for details. September 24:Record sales of merchandise to customers. See âInventory Valuationâtab for details. September 24: Record impact of sales transactionon COGS and the inventory asset. See âInventory Valuationâ tab fordetails. September 30: Purchase merchandise inventory for resale tocustomers. See âInventory Valuationâ tab for details. September 30:Accrue employee wages for period of September 16th throughSeptember 30th September 30: Total September bakery sales are$20,000. $6,000 of these sales are on accounts receivable. Step SixData (Click on the link to return to the prompt.) On September 30,the following adjustments must be made: ï· [Note: This is a sample.]Depreciation of baking equipment transferred to company on 7/13.Assume a half month of depreciation in July using the straight-linemethod. ï· Accrue interest for note payable. Assume a full month ofinterest for July. (6% annual interest on $10,000 loan fromparents.) ï· Record insurance used for the year. ï· Actual bakingsupplies on-hand as of September 30 are $1,100. ï· Office supplieson-hand as of September 30 are $50. Wage calculation data: 9 MonthHours Rate Pay 31 Jul. 10 12 120 15 Aug. 40 12 480 31 Aug. 35 12420 15 Sep. 38 12 456 30 Sep. 40 12 480

PEYTON APPROVED
General Journal for the period from July, 1 to September, 30
Date	Account Title	Debit	Credit
July, 1	Cash	$10,000
	Common Stock		$10,000
July, 1	Baking Supplies	$6,500
	Accounts Payable		$6,500
July, 3	Cash	$10,000
	6% Note Payable		$10,000
July, 7	Prepaid Rent	$1,500
	Cash		$1,500
July, 10	Licensing fee	$375
	Cash		$375
July, 11	Miscellaneous Expense	$250
	Cash		$250
July, 13	Baking Equipment	$6,000
	Common Stock		$6,000
July, 13	Advertising expense	$200
	Cash		$200
July, 14	Office Supplies	$300
	Cash		$300
July, 30	Telephone expense	$75
	Accounts Payable		$75
July, 31	Prepaid Insurance	$2,400
	Cash		$2,400
July, 31	Salaries expense	$120
	Salaries payable		$120
July, 31	Cash	$10,000
	Accounts Receivable	$5,000
	Sales		$15,000
Aug, 5	Salaries payable	$120
	Cash		$120
Aug, 8	Cash	$3,800
	Accounts Receivable		$3,800
Aug,10	Accounts Payable	$75
	Cash		$75
Aug,15	Baking Supplies	$5,000
	Accounts Payable		$5,000
Aug,15	Salaries expense	$480
	Salaries payable		$480
Aug,15	Rent Expense	$1,500
	Cash		$1,500
Aug,18	Cash	$3,000
	Accounts Receivable		$3,000
Aug,20	Accounts Payable	$8,500
	Cash		$8,500
Aug,20	Salaries payable	$480
	Cash		$480
Aug,22	Office Supplies	$300
	Cash		$300
Aug,31	Telephone expense	$75
	Accounts Payable		$75
Aug,31	Salaries expense	$420
	Salaries payable		$420
Aug,31	Cash	$12,500
	Accounts Receivable	$7,500
	Sales		$20,000
Sept, 1	Dividend	$10,000
	Cash		$10,000
Sept, 5	Salaries payable	$420
	Cash		$420
Sept, 8	Cash	$4,000
	Accounts Receivable		$4,000
Sept,10	Accounts Payable	$75
	Cash		$75
Sept,11	Baking Supplies	$7,000
	Accounts Payable		$7,000
Sept,13	Accounts Payable	$5,000
	Cash		$5,000
Sept,15	Salaries expense	$456
	Salaries payable		$456
Sept,15	Rent Expense	$1,500
	Cash		$1,500
Sept,20	Salaries payable	$456
	Cash		$456
Sept,30	Salaries expense	$480
	Salaries payable		$480
Sept,30	Cash	$14,000
	Accounts Receivable	$6,000
	Sales		$20,000

	Unadjusted Trial Balance		Adjusting Entries		Adjusted Trial Balance
Account	Debit	Credit	Debit	Credit	Debit	Credit
Cash	25,356.75				25,356.75
Baking Supplies	18,500.00			17,400.00	1,100.00
Merchandise Inventory	175.45				175.45
Prepaid Rent	1,500.00				1,500.00
Prepaid Insurance	2,400.00			400.00	2,000.00
Baking Equipment	6,000.00				6,000.00
Misc. Supplies	600.00			550.00	50.00
Accounts Receivable	7,700.00				7,700.00
Notes Payable		10,000.00				10,000.00
Accounts Payable	2,000.00				2,000.00
Wages Payable		480.00				480.00
Common Stock		16,000.00				16,000.00
Dividends	10,000.00				10,000.00
Bakery Sales		55,000.00				55,000.00
Merchandise sales		221.00				221.00
Baking Supplies Expense			17,400.00		17,400.00
Rent Expense	4,500.00				4,500.00
Insurance Expense			400.00		400.00
Misc. Expense	250.00				250.00
Business License Expense	375.00				375.00
Advertising Expense	200.00				200.00
Wages Expense	1,836.00				1,836.00
Telephone Expense	150.00				150.00
COGS	157.80				157.80
Depreciation Expense			250.00		250.00
Accumulated Depreciation				250.00		250.00
Interest Expense			150.00		150.00
Interest Payable			150.00		150.00
Misc. Supplies Expense			550.00		550.00
Total	81,701.00	81,701.00	18,750.00	18,750.00	82,101.00	82,101.00

beigewombat114

EXERCISE 12-14 Identification of Relevant Costs [L012-1] Kristen Lu purchased a used automobile for $8,000 at the beginning of last year and incurred the following operating costs: Depreciation ($8,000 = 5 years) Insurance ..... Garage rent .......... Automobile tax and license ............ Variable operating cost .......... $1,600 $1,200 $360 $40 $0.14 per mile The variable operating cost consists of gasoline, oil, tires, maintenance, and repairs. Kristen esti- mates that, at her current rate of usage, the car will have zero resale value in five years, so the annual straight-line depreciation is $1,600. The car is kept in a garage for a monthly fee. Required: 1. Kristen drove the car 10,000 miles last year. Compute the average cost per mile of owning and operating the car. 2 Kristen is unsure about whether she should use her own car or rent a car to go on an extended cross-country trip for two weeks during spring break. What costs above are relevant in this decision? Explain. 3. Kristen is thinking about buying an expensive sports car to replace the car she bought last year. She would drive the same number of miles regardless of which car she owns and would rent the same parking space. The sports car's variable operating costs would be roughly the same as the variable operating costs of her old car. However, her insurance and automobile tax and license costs would go up. What costs are relevant in estimating the incremental cost of owning the more expensive car? Explain.

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