Question 1 (20 marks, 30 minutes)

All amounts must be rounded off to the nearest rand.

All amounts shown are inclusive of VAT at a rate of 15% unless otherwise stated.
Woofles is a sole proprietorship owned by Lola Gumede. Woofles sells high quality
outdoor dog beds. The year end for Woofles is 31 December 2018.
Listed below are the balances contained in the pre-adjustment trial balance for the
year ended 31 December 2018.
DR CR
R R
Sales 125 000
Cost of sales 75 000
Interest income 6 000
Rent expense 12 000
Bad debts 500
Operating expenses 22 500
Long-term investment 100 000
Property, plant and equipment 10 000
Inventory 12 000
Trade receivables 1 500
Bank 75 250
Allowance for doubtful debts 750
Trade payables 2 500
Capital 80 000
Drawings 5 000
Retained earnings 29 500
Loan from bank 70 000
313 750 313 750

Additional information:
1. On 1 July 2018 rental increased by 10% to R1 100 per month. The business has
rented this property since 1 July 2015. This increase was not recorded.
2. Woofles’ long-term investment attracts interest at a rate of 7% per annum. Interest is
not compounded and paid at the beginning of the next financial year. The investment
remained at R100 000 for the entire financial year. Woofles does not receive interest
income from any other source. The accountant erroneously used 6% when
calculating the interest income due to Woofles.
3. Muddy Dogs, a debtor with an account balance of R400, was declared insolvent at
year end. No transactions have been processed to write off Muddy Dogs’ account.
4. Woofles currently provides 5% for doubtful debts on the closing trade receivables
balance annually, which is considered a reliable estimate.
5. On 31 December 2018, a cash buyer returned a dog bed to the value of R775 as the
bed was too small for her dog. The current mark-up policy on all products is 25% on
cost. The customer was refunded in cash. No refund journals were processed.
6. On 31 August 2018, a cheque for R30 000 was issued to repay part of the bank
loan. This payment was correctly recorded in the general journal. The loan was
taken out on 1 January 2018 and interest is charged at 6% per annum (not
compounded). The interest was still outstanding at year end. No interest
transactions have been processed.
7. The accountant erroneously included an operating expense pertaining to the next
financial year in the current financial year. An amount of R5 000 was paid on
31 December 2018.

Required: Marks
1. Prepare the adjusting journal entries required by Woofles for the year 20
ended 31 December 2018.

Dates and narrations are required.

Total Marks 20