FA Simulation 2

Simulation 2
Narrative:
You have been hired as a Junior Accountant to work for Plants from Paradise (Plants) a
garden centre in the city of Victoria, BC. Your role reports directly to Plants' Controller Miranda
Cornell. Each week you are emailed a series of tasks that are Miranda has aligned to match
your current accounting class schedule. Each week tasks are laid out for you to assist Miranda
in both operations and accounting decision making. Miranda is hoping to help you see the
broader application that accounting has on operating a business and hopes that the weekly
tasks help to identify how accounting impacts operations.
Plants from Paradise reports under ASPE, and has a December 31, 2021, year end. All work
that you are preparing is for their financial statements dated as such.
Additional Information:
Miranda has yet to be found today and there seems to be a lot more customers visiting Plants
this week, when you arrive Monday morning the following note was on your desk:
"Hi, been quite busy as you can see but this week we have a few more tasks that I was hoping
to get your help with. You did a great job last week so I feel that I can leave you alone while I
go sell some plants… if you have any questions come and grab me!
1) Record inventory journal entries – Appendix A
2) Prepare the correcting entry for this error I cannot figure out - Appendix B
3) Adjust inventory based on inventory count figures - Appendix C
4) Help answer the operations manager's questions - Appendix D
Thanks,
Miranda"
Appendix A: Inventory
Tasks:
1) Record inventory journal entries – Appendix A
Background:
Plants from Paradise uses the perpetual inventory system (COGS/Inventory recorded for each
sale). Assume all invoices are FOB Destination for this week.
Miranda included a few invoices that she was hoping you could prepare the journal entries and
post to the general ledger. Miranda prefers to record inventory entries one at a time, so please
include the invoice number for each description.
Hint: invoices include a GST component, please record the tax amount to inventory for
simplicity, we will discuss GST impacts in future chapters!
1) Invoice#10678 – Planters Potting Mix
2) Invoice#698-001 – Out of this World Plants
Journal Entry Template: note – please ignore account numbers as none have been provided.
En Date Description Debit or

try Account Name Credit Amount
#
1 12-23-21 Invoice#10678 Merchandise Inventory DR $1,626.92
Accounts Payable CR $1,626.92
2 12-28-21 Invoice#698-001 Merchandise Inventory DR $1,250.76
Accounts Payable CR $1,250.76

Appendix B: Inventory Errors
Tasks:
1) Prepare the correcting entry for this error I cannot figure out - Appendix A
Note from Miranda: I have not had time to review all of the invoices that we received
before you started, and the one below in particular has been troublesome and I cannot
figure out why. I recorded the entry as you would expect based on the invoiced amount
and we paid Planters cash for the total. Can you please help me identify what is wrong
with the invoice and provide the correcting entry?
Invoice#10555 – Planters Potting Mix
1) Please provide an explanation of what the error was including the amount if
necessary? (2 marks)
There was an error in computing the Total Amount of the Lawn Ornaments,
the correct amount is $221.9 computed as 10*22.19, but the billed amount is
$1,109.5. An adjusting entry is needed to adjust the inventory balance and to
recognize a receivable from Planters in order to recover the excess cash
payment.
2) Please prepare the journal entry, if required, if not please explain why? (2 marks)
Entr Date Description Debit or

Account Name Amount
y# Credit
12-31-21 Invoice#1055 Receivable from DR

1 $887.6
5 Planters Plotting Mix
Merchandise Inventory CR $887.6

Appendix C: Inventory Count
Tasks:
The inventory balance in our system is currently $12,580. Based on the count, we determined
that we have a total inventory balance of $10,333. Can you please provide the following?
a) Provide an explanation for why we perform an inventory count
We perform an inventory count in order to test the existence of the recorded

inventory amount and adjust the balance if necessary to reflect accurate and
current information.
b) Provide an explanation for what causes an adjusting journal entry to be required for
inventory, as in what reduces the inventory balance necessitating an adjustment?
Physical inventory count may not always be equal to the recorded balance
because some may be lost, stolen, spoiled, mistake in counting or just a recording error.
c) The Adjusting Journal Entry
En Date Description Debit

try Account Name or Amount
# Credit
12-31-21 To adjust inventory amount due DR

to discrepancy with actual Inventory Loss $2,247
count.
Inventory CR $2,247
Appendix D: Operations Manager’s Questions.
Tasks:
1) Help answer the operations manager's questions -
Background information: the operations manager entered the office to discuss the ongoing
inventory issues that Plants from Paradise has been experiencing and the recent inventory
count.
Barry said that the problem he believes is that no one is receiving the orders by counting the
amount of plants actually received. Berry continued and mentioned that when he arrives in the
morning, usually first, that the lock on the gate is rarely closed over. Lastly, Plants from
paradise has a policy that employees can take sick plants home and per Berry some of the
plants employees are taking appear to be in good health.
Berry had the following questions:

1) How much inventory was written off?
$2,247
2) If we average a return of $10 a plant per sale - how many plants must we sell in
additional to make up this loss? Show your work.
In order to make up for the $2,247 loss, we have to sell 225 plants.
2247/10=224.7
3) One of our suppliers mentioned payment terms discount, can you explain how
this works and what it is, they said their terms are 2 percent in 10, net 30? Please
provide an example (2 marks)
If we paid within 10 days from the invoice date, we get a discount of 2% of the invoice
amount. Otherwise, the invoice is due within 30 days and we get zero discount.
Invoice Full Amount: 1,000
Invoice Date. Dec 1, 2021
Invoice Due Date: 30 days
Payment Terms: 2/10 net 30
Discount period: 10 days
Discount: 20
Payment made within 10 days: 1000 – 20 = 980

Payment after 10 days: 1,000
4) Lastly, can you see any solutions for the problems identified above please provide
both the problem and a potential solution for each? (2 marks per, max 6 marks)
Problem: Not counting the purchased plants when received

Solution: Always perform regular inventory count and when receiving plants
Problem: The gate is not properly locked

Solution: Invest in a good security system/CCTV
Problem: Employees taking good plants instead of sick ones

Solution: Let one trusted and trained employee look at the plants and separate sick plants
from good ones. Then, let employees take only from the sick ones.

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Simulation 2

En Date Description Debit or

1 12-23-21 Invoice#10678 Merchandise Inventory DR $1,626.92

Accounts Payable CR $1,626.92

2 12-28-21 Invoice#698-001 Merchandise Inventory DR $1,250.76

Accounts Payable CR $1,250.76

Invoice#10555 – Planters Potting Mix

Entr Date Description Debit or

12-31-21 Invoice#1055 Receivable from DR

Merchandise Inventory CR $887.6

We perform an inventory count in order to test the existence of the recorded

c) The Adjusting Journal Entry

En Date Description Debit

12-31-21 To adjust inventory amount due DR

Berry had the following questions:

Payment made within 10 days: 1000 – 20 = 980

Problem: Not counting the purchased plants when received

Problem: The gate is not properly locked

Problem: Employees taking good plants instead of sick ones

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