Case Study –Maxwell Fitness

The objective of this assignment:

This assessment is designed to introduce you to the use of double entry for a
small business. It covers many of the common transactions of everyday
business. It is more than a data entry exercise, requiring you to carefully
record each transaction.

IMPORTANT:

IMPORTANT ASSIGNMENT GUIDELINES:

It is the responsibility of students to read the assignment format and

submission requirements carefully before starting the assignment.

Should a submitted assignment fail to comply with any of the following

two requirements, it will not be accepted for marking and will result in a
grade of zero (0) for the entire assignment.

Requirement 1:
The assignment must be submitted in only Word file named as following: your
name-ID. For example: Your name is Nguyen Van A and your ID is BA123.
Your file will be named as NguyenVanA_BA123. If you fail to input your name
and ID, your result will be zero (0).

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General Information:
This case study is designed to introduce you to apply double entries for a
typical small business. It covers many of the common transactions of
everyday business. In completing the assignment, you are required to
carefully record each transaction, understand how to post in the subsidiary
ledgers and create the financial statements.

Maxwell Fitness (ABN 53 004 085 616), 470 Brisbane Street, North
Melbourne, 3051.

Adeline Ridley, the owner of Maxwell Fitness has worked in the fitness
industry for many years, but in 2018, she purchased this particular business.
It operates from a rented shop front where she has a five-year rental
agreement at a set price of $1760 per calendar month. Rent is usually paid
on the first of each month for the relevant month.

Maxwell Fitness has two income streams – selling three popular products –
Rowing machines and Exercise bikes and secondly providing fitness training
for groups. Maxwell Fitness’s principal customers for inventory sales are
medium sized organisations who have office-based gyms but does from time
to time sell to the public.

Maxwell Fitness has operated the business using a manual accounting

system since purchasing the business in 2018. You are hired as the
accountant of the firm.

All purchases of inventory are from local suppliers who supply inventory to
Maxwell Fitness free of charge.

Specific Information:

Maxwell Fitness purchases all its inventory on credit and sells inventory on
credit to her business customers. From time to time, she sells inventory for
cash to the public, and all fitness classes are also strictly on a cash basis.

Customer account balances as at: March 31st, 2020

Name Address Date Last Account

Invoice Balance

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Offline 542 City Road, Melbourne March 18th $5,610
Education ABN - 50 999 555 666
Organisation
Village Fair 601 Suburb Street, South March 27th $6,765
Melbourne
ABN - 92 555 888 111

All credit customers are offered the following terms: 2.5% 15 days, net 30.

Suppliers account balances as at: March 31st, 2020

Name Address Terms Account

Balance
Rower Gears 1 Scull Street, Brunswick 3% 15, net 30. $5,505
Ltd. ABN - 50 596 794 363
Cycle Bazaar 14 Gove Street, Northcote 2% 15, net 30. $3,834
ABN - 20 888 560 222

Each of the above account balances represents deliveries of inventory

received on March 24th.

Goods: Sales and Purchases

All sales are credit, except where specifically stated, and all business
expenses are paid for with cash, unless stated otherwise. The firm applies the
perpetual inventory management system.

Employee: Fitness Classes

 Maxwell Fitness has only one part time/casual employee, Josie Barker.
Josie Barker conducts fitness classes for groups. For each class,
Josie’s gross wage is $100 per class, regardless of the number of
participants.
 Josie Barker is paid in arrears twice per month - on the 12 th and 26th.
 Wages Payable as at March 31,2020 - $510

Inventory: March 31st 2020

The following is a list of inventories on hand and the suppliers at 31 st March

2020.

Quantit Item Description Last Last Supplier

y on Code Cost Sale
hand Price Price
15 RM Rowing Machine $440 $700 Rower Gears Ltd.

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 6 EB Exercise Bike $260 $450 Cycle Bazaar

Exercise Classes:

Maxwell Fitness conducts regular fitness classes in-house to groups of no

more than 20 per group. Client groups pay Maxwell Fitness $440 per class
which lasts for one hour.

The price of $440.

Prepaid Advertising:

On January 1st, 2020, Maxwell Fitness paid $1650 in advance for 6 months
advertising.

Trial Balance as at March 31st, 2020. (This is beginning balance)

General Ledger Accounts Debit Credit

Bank Account 19,456  
Inventory 8,160  
Prepaid Advertising 825  
Accounts Receivable 12,375  
Accounts Payable   9,339
Motor Vehicle 25,000  
Accumulated Depreciation on MV’s.   5,625
Office Equipment 12,000  
Acc. Depreciation on Office Equipment   3,200
Owners Capital   58,972
Wages Payable   510
Accrued Energy Bill – TRU Energy   170
$77,816 $77,816

Transactions during April 2020:

1 Paid Rent of business premises for April - $1,760

Purchases of inventory from both suppliers. From Rower Gears Ltd –
10 Rowing machines and from Cycle Bazaar 12 Exercise Bikes. All

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 inventory was received within 24 hours.
2 Paid Tru Energy for March energy bill - $170.00
2 Credit Sales of inventory to Village Fair – 6 Rowing machines and 4
Exercise Bikes.
3 Received payment from all Customers for amounts owing on March
31st. Discounts for early settlement were made to customers paying
inside the discount period.
3 Paid all suppliers in full for March account balances within the
required discount period. Paid all suppliers in full for inventories
purchased in March. Discount is applicable for payment within
discount period.
4 Credit sales to Offline Education Organisation – 8 Rowing machines
and 5 Exercise Bikes.
4 Cash customers paid for 20 hours of Fitness classes. All classes will
be completed over the next 12 days. (Since the classes will be
completed in April, this transaction can be accounted/recorded as
income directly rather than unearned income).
5 Paid for motor vehicle fuel - $99 for the month of April
8 Paid for stationary expenses - $220.00 for the month of April
9 Paid cash for accounting fees - $770.00 for the month of April
12 Wages paid to Josie for 10 classes completed in April and accrued
March wages.
14 Adeline(owner) withdraws cash drawings - $1,500.00
23 Adeline takes home an exercise bike as drawings.
24 New Credit Customer –ElectroFitness, ABN 70 439 833 812, 6 Oval
Drive, Jolimont. The new credit customer is offered the following
terms: 1.5%,20 days, net 30.

2 Rowing machines and 2 Exercise Bikes were sold to this new

customer.

25 Paid for motor vehicle fuel - $132.00 for month of April

26 Wages paid to Josie for 10 classes held in April

Balance Day Adjustments at April 30th, 2020.

Some of the necessary adjustments are to be found in the transactions above.

Other adjustments are listed below.

1) All Non-Current Assets (Motor Vehicle and Office Equipment ) to be

depreciated at 15% per annum Straight Line on cost which means the
firm will depreciate annually 25,000*0.15 = 3,750 for motor vehicle and
12,000*0.15 = 1,800 for office equipment.

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 2) Advertising Expense was prepaid on January 1, 2020 for 6 months.

3) Energy bill from Tru Energy for April - $209. This bill has not been
recorded or paid yet.

Required:

Section 1:

Record the transactions and adjusting entries for the month ending 30th April
2020.

Section 2:
Prepare the following reports:

(i) Trial Balance for the moth ending April 30 th, 2020 (before all
adjustments)
(ii) Adjusted trial balance for the month ending April 30 th 2020 (after
all adjustments)
(iii) Income Statement for the month end 30th April 2020.
(iv) Statement of changing equity for the month end 30 th April 2020
(v) Balance Sheet as at April 30th, 2020.
Note: The beginning balances are stated in trial balance at 31 st March 2020.
The ending balance of asset account = Beginning balance + total debit – total
credit
The ending balance of liability account = Beginning balance + total credit –
total debit.
The ending balance of equity account = Beginning balance + total credit –
total debit.

Section 3:

Prepare the following reports:

(vi) Closing entries

(vii) Post –closing trial balance for the month end 30 th April 2020

ASSIGNMENT SUBMISSION:

After completing the above requirements of Section 1, 2, and 3,

you are required to submit your assignment through Blackboard.

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Go through the submissions very carefully to ensure that you have
uploaded all required files. Please note that all required reports
must be produced with your name and student ID in your file
name.

Useful Assignment Advice:

Here is a list of things you can do in order to attempt to gain high marks.
 Start the assignment early and finish early so that you have plenty of
time to go back over your work and find any errors.
 Keep regular copies of your files (see guidance for how to produce
session report/s).
 Set regular times to complete the tasks and set deadlines that you can
realistically achieve.
Students have traditionally made the same predictable mistakes. Some
common mistakes include (but are not limited to) the following:

 Wrong amounts recorded – eg: Incorrect sales/purchases amounts.

 transactions not recorded – eg: Missing sales or purchase items.
 transactions recorded twice
 forgetting to record the transaction on the correct date, and recording
the transaction on the default date, which might be in the wrong month.
 incorrect calculations for discount.
 adjusting entries not done correctly – eg: Missing adjusting entries and
not calculating the monthly depreciation correctly.
 Missing some adjusting entries that appear in the transactions for the
month.
 confusing account names.
 Poor display of reports.

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