A. Goodbrother has operated successfully for a number of years as United Traders. The policy of the business is to determine selling prices by consistently marking up all goods by 30% on cost. At the end of 2018 the firm’s bookkeeper retired and was replaced by a younger and less experienced person. At the end of 2019 the new bookkeeper produced the following trial balance:

UNITED TRADERS
TRIAL BALANCE AT 31 DECEMBER 2019


DR
R
CR
R
Accounts payable 23 300
Accounts receivable 10 300
Capital 77 500
Cash at bank 1 000
Drawings 15 000
Land and buildings, at cost 70 000
Loan 30 000
Office equipment 31 000
Inventory 41 000
Administrative expenses 9 900
Electrical repairs & maintenance expense 2 800
Interest expense 3 400
Rent income 7 300
Salaries and wages expense 30 000
Trading summary 76 300


Additional information:

The trial balance was, as usual, given to a local firm of accountants to prepare the financial statements and the accountant assigned to the job discovered that:

1. The bookkeeper had started to record closing entries at the end of 2019 but after he transferred the totals for sales and cost of sales to the trading summary account he had been uncertain how to continue and had stopped.

2. Discounts totaling R1 300 which had been granted by suppliers during the year for prompt payment of merchandise bought on credit had not been recorded in the ledger.

3. Inventory costing R1 000 had been taken by Good brother for his personal use in December. No entry has yet been recorded for this transactions.

4. The business rents out surplus office space to a number of tenants and has earned R600 per month in rentals. A tenant paid part of their 2020 rents during December.


5. The amount of the loan shown on the trial balance represents the sum borrowed by the business on
30 June 2018. Interest at 16% per annum is payable quarterly in arrears on the first day of January, April, July and October. As the business had been temporarily short of cash, a repayment of R5 000 of the sum borrowed had been paid by Goodbrother from his personal bank account on 1 July 2019. The bookkeeper had not been told of this transaction and had thus not recorded anything.

All interest payments during the current year were made by the business and recorded correctly. The remainder of the loan is repayable in 2023.

6. Wages of R800 earned by employees during the last week in December were only paid on 3 January 2020.

7. On 30 June an amount of R3 000 had been paid to repair electrical fittings in the firm’s buildings. The contractor doing the repairs had supplied a mini-computer on the same date at a cost of R8 000. The bookkeeper had mistakenly recorded both amounts as office equipment.

8. At the end of each year office equipment is depreciated by 20% irrespective of the date on which it was purchased.


REQUIRED:

(a) Prepare entries, in the general journal form, required in terms of the adjustments or corrections which are necessary from the information given in 1. to 8 above. Ignore narration.

(b) Prepare, in journal form, all the entries needed to complete the closing procedure in the firm’s ledger at 31 December 2019.

(c) Prepare the Statement of Financial Position of United Traders at 31 December 2019