Starting a Business in Georgetown, Ontario

Part A: Benefits of Incorporating the Business

Samson McNaught, a final year student who just finished all the exams from Seneca College this year, he has put in a lot of effort in pursuing his Honours Bachelor of Commerce degree - International Accounting and Finance and expected to graduate with honours.  Samson thought he would not have finished his study without the assistance from the professors, he visited the professors and said goodbye to them.  Samson was planning to look for a summer part-time job so that he could enjoy his long-awaited summer break before he started pursuing his CPA designation.  As soon as Samson went home, he sent his resume to the Accounting firms applying for summer job in his home town, Georgetown.  He was not able to obtain a job that he wants as he prefers working as an accounting-related jobs as he had experience working in an Accounting firm in the co-op program offered by the college.  Samson waited for about two weeks but he still received no reply from the employers, he then walked around the Main Street to see if there are any business opportunities.  It was a Sunday when he walked around with a very nice weather, everyone in the town went out to have a walk as there is a flea market.  He ran into his childhood friend, Angel, who was selling her organic body care products in the flea market.  Angel told him that he is lucky to be in town this week as the flea market got cancelled twice due to the weather condition.  She told Samson that people nowadays prefer organic products, especially for body care products.  Samson then asked if Angel is interested to partner with him and start up their business.  As Angel studied Biochemistry in college and she did not have any accounting or business background, Samson agreed to be responsible for maintaining the financial records of the business.

Requirements:

Part A

Samson would like to explain the benefits of incorporating the business to Angel.  Please apply the case information and provide your explanation to her.  (about 250 words)

Part B

1.Journalize the transactions, including the adjusting entries and the entry to set up the cost of goods sold at the year end.
2.Prepare the following:
a.Trial Balance as at May 31, 2018
b.Income Statement for the month ended May 31, 2018
c.Statement of Changes in Shareholders’ Equity for the month ended May 31, 2018
d.Classified Statement of Financial Position (Balance Sheet) as at May 31, 2018

Part C

Samson got a job offer in an Accounting firm starting June 1; Angel agreed to run the business on her own while Samson remains his ownership in the business.  At the end of June, Angel told Samson the following and ask for Samson’s recommendation to enhance the internal control.

Angel keeps $5,000 in the cash register overnight as she believes that the chance of burglary is low.  The cash register is located near the window that can be broken easily.

When the part-time cashier is handing over the cash register to Angel, she did not reconcile the amount of cash in the register with the receipts.  She believes that the part-time cashier is honest and faithful.

Angel did not prepare bank reconciliation during June.  Instead she wanted to wait until the year end as she will be less busy at that time.  There were few transactions that Angel recorded but she could not locate the invoice.

State the implication of each internal control issue and provide your recommendation..