Question

Case Study in Accounting: LIGHTS, CAMERA, ACTION! Andrew Son is a Grade 11 high school student in Richmond Hill, Ontario. He enjoys school and does very well in most of his classes, especially accounting. He likes accounting so much that he plans to become a Chartered Professional Accountant when he finishes university. Andrew started his first part-time job last summer as an usher at the local movie theatre, the Yorkland Theatre The Yorkland Theatre is a small theatre owned by Tony Broadway, who started the business in August 2018. The theatre has a fiscal year end of July 31. It is located in downtown Richmond Hill and has two screens that show current movies, as well as some older movies that Mr. Broadway expects would still draw a crowd. Ticket prices range from $7 for youth/seniors to $10 for adults, with Tuesday night being a discount night where tickets are 50% off. In order to start up the business, Mr. Broadway took out a 5-year $72,000 bank loan on August 1, 2018 at an annual simple interest rate of 12%. The bank loan payments are due annually and include interest. Mr. Broadway has contracted out the concession stand to a confectionary company, Yummy Treats, that serves popcorn, pop. candy and nachos. Mr. Broadway charges Yummy Treats 15% of the monthly gross revenue from concessions plus 13% HST which is payable at the end of each month. Mr. Broadway doesn't know much about accounting and has had his niece look after the bookkeeping and financial reporting. This summer Mr. Broadway's niece has decided to travel to Europe for 2 months and will not be around for the July 31 year-end. Mr. Broadway panicked because he did not have anyone else to complete the July 31st accounting procedures for the theatre. Andrew overheard Mr. Broadway talking about his dilemma and offered to help. Andrew completed the Grade 11 Accounting class last semester and felt confident in his ability to complete the accounting procedures for a small business. He knew that it would be a great experience to see if he could put his knowledge into practice. Mr. Broadway had been pleased with Andrew's work at the theatre and agreed to let Andrew complete the July 31st procedures for the business.

Answer 1

Answers for Step2 questions:

1. Ans.: As on July'4, only the ordered has been placed, nighter the advance has been given nor the film 'Autos' has been delivered. So, Assets and libalities of the theater' books is unchanged and no tranasaction is required.

2. Ans: The insuance policy is for the period of 12 months from Nov'18 to Oct'19. Therefore, for the financial year ending 31st july'19, only 9 months expenses should be booked. As per Matching and periodic concept of accounting, expenses and revneues should be recored for the period , to which that pertains. This has resulted into recording of 9 months insurance premium as expense and 3 months premium (Aug'19-Oct-19) as prepaid expenses (Assets).

3.Ans: At the year, inentory counts is very inportant, as it informs us, how much actual inventory we hold at the year end. At the time of purchase of supplies we book the expenses, but the physical count tells us, the entire supllies has not be consumed. So ther is a closing stock. This closing stock adjustment with supplies gives a fair picture of Expenses (Supplies consumed) and assets (closing stock).

4. Ans: As per accural and matching concept of accounting, expenses should be recored in the FY, to which it belongs. Although we received the Hydro (utility) invoice in Aug'5, but actual consumption has happened in July'19, so the expenses belongs to the FY ended July'19 and can't be recorded in next year.

5. Ans: A person who is handling the sales should not be given the access to accounting. It may cause imparement of segregation of duty concept and it makes the internal control system vulnerable to fraud.

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