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ACCT1501 S1, 2005, Mid Session Exam, 15% This exam will be run in Week 8, Thursday 28th April

and will cover all of the basic material covered in lectures for weeks 1 to 6 of the course. The exam is a total of two hours and ten minutes. Venue Upper tea house, Lower tea house and Vista room at Randwick Racecourse* Time Two exam seatings Students with Students with Surnames beginning Surnames beginning Ab - Lew Li - Zu 9:00 am 12:00 pm 9.10am 11:10 am 12:10 pm 2:10 pm

Start of exam reading time Exam starts Exam ends

* To check the locations of these examination rooms go to:


https://my.unsw.edu.au/student/ academiclife/assessment/examinations/ExamMaps.html

The recommended readings, additional readings, tutorial and preparation questions for week 7 and lecture content are all examinable: WK1 L01 Welcome to Accounting 1A L02 General purpose financial reports WK2 L03 The balance sheet L04 Transaction analysis: A + L = OE WK3 L05 The profit and loss statement L06 Transaction analysis: Debits & Credits WK4 L07 Financial reporting principles L08 The accounting cycle WK5 L09 Adjusting the accounts L10 Preparing financial statements WK6 L11 Completing the accounting cycle L12 The worksheet and Solaire (The Solaire PS itself will not be examined in this paper, but the concepts discussed in this lecture will) The exam will be two hours and will be in the same format as the final exam. A copy of a the Mid-session paper from ACCT1501, Session 2, 2004 follows, and please not that the exam question 5 is a bank reconciliation not included as an examinable topic this session. No supplementary exam will be available for the mid-session. GOOD LUCK!!!

THE UNIVERSITY OF NEW SOUTH WALES

School of Accounting
ACCT 1501: ACCOUNTING AND FINANCIAL MANAGEMENT 1A Mid-Session Examination Solution Session 2, 2004
BEFORE commencement of the exam you should enter the following details below: FAMILY NAME: TUTORIAL NUMBER: STUDENT ID NUMBER: FIRST NAME: (see back cover of exam for tutorial list) . .

Please place your student ID on your desk. This exam is two hours plus 10 minutes reading time. This exam is worth 15% of your final composite mark. There are five parts to this exam worth 100 marks. Questions are not of equal value. Question 1 consists of 15 multiple choice questions. You need to answer these on the preprinted answer sheet, completing all the personal details, in pencil. Question 2, 3, 4 & 5 are to be answered in the spaces provided in the exam booklet, using either pen or pencil. You may leave the exam room at any time up to 15 minutes before the time the exam is due to conclude. After this time you may leave only when instructed by the supervisor.

PLEASE WRITE CLEARLY

Question 1 Multiple Choice

30 Marks

To be answered on the pre-printed multiple choice answer sheet.


1. Which of the following categories is not an example of good internal control a. b. c. d. e. Maintain effective records Rotation of duties Segregate duties Insurance of important assets None of the above

2. On June 15, 2004 Greer Co. accepted delivery of inventory which it purchased on credit. As of June 30 Greer had not recorded the transaction. The effect of this error on its balance sheet for June 30, 2004 would be a. assets and shareholders equity were overstated but liabilities were not affected b. shareholders equity was the only item affected by the omission c. assets and liabilities were understated but shareholders equity was not affected d. assets and shareholders equity were understated but liabilities were not affected e. None of the above

3. Jo Punter is a licensed CPA. She received cash of $25,000 in advance for a management consulting engagement. The best way to record this transaction is: a. b. c. d. e. Dr Cash $25,000: Cr Management Consulting Revenue $25,000 Cr Cash $25,000; Dr Management Consulting Revenue $25,000 Dr Cash $25,000; Cr Accrued Consulting Revenue $25,000 Dr Cash $25,000; Cr Unearned Consulting Revenue $25,000 None of the above

4. Which of the following is not an essential characteristic of an asset? a. b. c. d. e. There must be a future economic benefit It must be legally owned by the entity The entity must have control over the asset The transaction giving control over the asset must have occurred None of the above i.e. all are essential

5. Which of the following statements is not an objective of financial reporting? a. Provide information that is useful in investment and credit decisions. b. Provide information about enterprise resources, claims to those resources, and changes to them. c. Provide information on the liquidation value of an enterprise. d. Provide information that is useful in assessing cash flow prospects. e. All of the above are objectives of financial accounting

6. The post-closing trial balance contains non-zero balances for: a. b. c. d. e. Only the revenue, expense and dividends accounts Only the revenue and expense accounts Only asset and liability accounts Only the asset, liability and shareholders equity accounts None of the above

During the financial year ended 30th June 2003 Anderson & Itz Ltd commenced business. During the year the company received $72,000 for services rendered during the year and at the end of the year it was owed $5,000 for work it had done but not yet been paid for. In addition, the company received $2,000 for an assignment to be completed in July 2003. The company paid $45,000 for rent, salaries and other expense incurred during the financial year and a further $4,000 for rent for July and August 2003. 7. What was the net profit of Anderson & Itz Ltd on a cash basis for the year ended 30th June, 2003? a. $27,000 b. $25,000 c. $32,000 d. $30,000 e. None of the above

8. What was the net profit of Anderson & Itz Ltd on an accrual basis for the year ended 30th June, 2003? a. $27,000 b. $25,000 c. $32,000 d. $30,000 e. None of the above.

9. A basic accounting cycle could involve the following steps: (1) Source Documents (2) (3) Ledgers (4) Trial Balance (5) Adjusting Journal Entries (6) Closing Journal Entries (7) Post-closing Trial Balance (8) Financial statements Step 2 would best be described as: a. b. c. d. e. Adjusting entries Invoices Transactions Journals Data entry

10. Calculate total expenses for the month of March given the following: (1) Paid wages of $60,000 in March of which $10,000 related to work done in Feb (2) Received an electricity bill of $5,000 in March covering charges for March. It will be paid in April (3) Paid commission of $15,000 relating to February Sales a. b. c. d. e. $55,000 $60,000 $65,000 $80,000 $85,000

11. Inventory purchased for $100,000 is sold on credit for $150,000. A perpetual inventory system is maintained. The journal entries to record the sale are: a. Dr COGS $100,000 Cr Inventory $100,000 Dr Cash at Bank $150,000 Cr Sales Revenue $150,000 b. Dr Cash $150,000 Cr Accounts Receivable $150,000 Dr COGS $100,000 Cr Inventory $100,000 c. Dr COGS $100,000 Cr Inventory $100,000 Dr Accounts Receivable $150,000 Cr Sales Revenue $150,000 d. Dr Inventory $100,000 Cr COGS $100,000 Dr Sales Revenue $150,000 Cr Accounts Receivable $150,000 e. Dr COGS $100,000 Cr Inventory $100,000 Dr Sales Revenue $150,000 Cr Cash at Bank $150,000 5

12. Given the following information related to Newland Ltd, what is the balance of shareholders equity? Property Plant and Equipment $1,300,000 Cash $400,000 Accounts Receivable $400,000 Accounts Payable $300,000 Loans to the company $200,000 a. b. c. d. e. $1,600,000 $1,400,000 $1,300,000 $2,400,000 None of the above

13. Which of the following is a typical closing entry? a. Dr Profit and Loss summary Cr Supplies on hand b. Dr Profit and Loss summary Cr Prepaid insurance c. Dr Profit and Loss summary Cr Insurance expense d. Dr Dividends Declared Cr Retained Profits e. None of the above

14. Hania Limited announced a strong accrual profit of $17.4 million. However, a glance over the Statement of Financial Position reveals that there is a large increase in net receivables. Which of the following is the most likely outcome? a. Cash profit will be overstated b. Cash profit will be higher than accrual profit c. Accrual profit will be understated d. Accrual profit will equal cash profit f. Cash profit will be lower than accrual profit 15. Spendthrift Ltd has a petty cash fund. The following expenses were incurred during the month: Snacks $16.20; and Supplies $24.65. At the end of the month, Petty Cash is reimbursed. What is the correct journal entry to replenish the fund? a. Dr Petty Cash $40.85 Cr Cash $40.85 b. Dr Supplies expense $24.65 Dr Miscellaneous expense $16.20 Cr Cash $40.85 c. Dr Petty Cash $40.85 Cr Supplies expense $40.85 Cr Miscellaneous Expense $40.85 d. Dr Supplies expense $24.65 Dr Miscellaneous expense $16.20 Cr Petty Cash $40.85 e. Both a. and b.

Question 2

Key Conceptual Terms

10 Marks

Various accounting assumptions, principles, constraints, and characteristics are listed below. Select those which best justify the following accounting procedures and indicate the corresponding letter(s) in the space(s) provided. A letter may be used more than once or not at all. A. B. C. D. E. B Historical cost Relevance Monetary unit Going concern Comparability F. G. H. I. J. Economic entity Materiality Matching Accounting period Revenue recognition K. Full disclosure L. Industry practices M. Reliability

1. The quality that helps users make predictions about present, past, and future events.

J or H 2. Recording a transaction when goods or services are exchanged for cash or claims to cash. F G I G A M H C 3. Preparing consolidated statements. 4. Expensing, when acquired, metal office wastebaskets having a life of ten years. 5. The preparation of timely reports on continuing operations. 6. Reporting those items that are significant enough to affect decisions. 7. Reporting assets at original acquisition values. 8. Reporting information that is faithfully representative of economic events. 9. Establishment of an allowance for doubtful accounts. 10. The ability to add financial statement figures relating to different time periods.

Question 3

Revenue and Expense Adjustments

24 Marks

The unadjusted trial balance of Ski Fever Company as of December 31, 2004 is presented below:
Ski Fever Company Unadjusted Trial Balance

December 31, 2004


ACCOUNTS

Cash Short-term Investments Accounts Receivable Allowance for Doubtful Debts Inventory Supplies on Hand Equipment Accumulated Depreciation Accounts Payable Loan Payable Share Capital Retained Earnings Cost of Goods Sold Office Salaries Sales Commissions Rent Expense Misc. Expense Rent Revenue Sales TOTALS

Unadjusted Trial Balance DR CR $ $ 19,800 4,050 40,000 420


16,800 1,040

49,000
9,500 4,400 4,250 40,000 25,340 238,520 20,800 29,000 7,200

2,200
14,400 330,100

428,410

428,410

Required: As the accountant for Ski Fever Company, you are to A. Prepare adjusting journal entries based on the following data: (10 Marks)

a. A physical stock take of supplies as at December 31 showed $280 are currently in stock. (Assume that the value of supplies is material) b. On September 30, 2004 Ski Fever received $14,400 rent from its lessee for an eighteen-month lease beginning on that date. c. The loan was taken on October 1, 2004, with interest at 8%. Interest is payable annually. d. On November 30, 2004 Ski Fever entered into a 12 month lease of a show room from Snow Hut Limited. Provisions of Ski Fevers lease contract specify that rent payments must be made one month in advance. The monthly rent payment amounts to $900 per month. As of December 31, 2004 the January rent has been paid. e. Salesmen are paid commission of 10% of sales. December sales were recorded at $28,000. Commissions on sales made for December have not yet been paid. 9

A. Adjusting journal entries : 2 marks for each JE, 1 amount, for each account a. The correct ending balance is $280.An adjustment of (1,040-280) $760 is required to account for supplies that have been used. Supplies Expense ........................................................ ...760 Supplies .............................................................. 760

b. Rent revenue for eighteen months is $14,400. It has all been recorded as Rent Revenue, rather than unearned rent revenue. The monthly rent is equal to $14,400 18 = $800. Since signing the lease only three months have passed or 15 months of rent remains unearned ($12,000). Rent Revenue ............................................................... 12,000 Unearned Rent Revenue 12,000

c. The loan was taken out on October 1, bearing interest at 8%, due Feb. 1, 2004. Loan is 4,250, interest is 8 %, need interest expense October 1 to December 31 3 months Interest Expense ............................................................................ 85 Interest Payable .................................................................... ($4,250 .08 3/12 = $85)

85

d. Provisions of a lease contract specify rent payments must be made one month in advance, with monthly payments at $900/mo. This provision has been complied with as of Dec. 31, 2003. Since the trial balance contains no account for Prepaid Rent, and the lease has been paid in advance, the $900 lease payment has apparently been debited to Rent Expense. An adjustment must be set up for the Prepaid Rent. Prepaid Rent .................................................................. 900 Rent Expense ......................................................

900

e. Salesmen are paid commissions of 10% of sales. Commissions on sales for the last week of December have not been paid. 10% of sales is 10% $330,100, which is $33,010. The balance in the Sales Commissions account is $29,000 before adjustment, indicating that $4,010 of commissions are accrued but unpaid. Sales Commissions ......................................................... 4,010 Sales Commissions Payable .. 4,010

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B. Prepare a Statement of Financial Position as at December 31, 2004. (14 Marks)

Ski Fever Pty Ltd Statement of Financial Position as at December 31 1 mark


ASSETS 1 mark for CA/CL Current Assets Cash Prepaid Rent Short-term Investments Accounts Receivable Less Allowance for Doubtful Debts Net Accounts Receivable Inventory Supplies on Hand Total Current Assets Non-Current Assets Equipment Less Accumulated Depreciation Written Down Value

19,800 900 4,050 40,000 420 39,580 16,800 280 81,410 49,000 9,500 39,500 120,910

TOTAL ASSETS 5 marks LIABILITIES Current Liabilites Accounts Payable Unearned Rent Revenue Interest Payable Sales Commission Payable Total Current Liabilities Loan Payable TOTAL LIABILITIES 2 marks NET ASSETS SHAREHOLDERS' EQUITY Share Capital Opening Retained Earnings 25,340 Plus Profit for the Year 30,825 Closing Retained Earnings SHAREHOLDERS' EQUITY 5 marks 40,000

4,400 12,000 85 4,010 20,495 4,250 24,745 96,165

56,165 96,165

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Question 4

Accounts Receivable

20 Marks

McChuck Computer Sales supplies the following information: At 1 July 19X7 Accounts Receivable totalled $80,000, while the Allowance for Doubtful Debts was $2,000. At 30 June 19X8 Accounts Receivable totalled $175,000 (after debt write-offs of $1,700). Ageing analysis of the $175,000 revealed the following: Days Outstanding: 0 - 30 31 - 60 61 - 90 91 - 120 Over 120 Amount $98 000 32 000 30 000 6 000 9 000 Doubtful Debts 1% 2% 5% 50% 60%

Information relating to the year ended 30 June 19X8: Credit Sales Bad Debts Written Off Cash Received from Debtors Sales Returns & Allowances

$1 000 000 1 700 900 000 3 300

In addition, a debtor who owes $5,000 and whose account is only 60 days old has been declared bankrupt. It is highly probable that the whole amount will be lost. No entry has yet been recorded for the likely loss. Required: A. (17 Marks) Using T-accounts show the Accounts Receivable and the Allowance for Doubtful Debts accounts as they would appear after all entries (including adjusting entries) have been prepared and posted, on the assumption that the end-of-year-Allowance for Doubtful Debts is to be based on an ageing analysis of Accounts Receivable. Show the other account(s) affected by each ledger account entry.

Date

Particulars 1-Jul o/bal Sales

Accounts Receivable Amount Date 80,000 1,000,000

Particulars ADD Cash SR&A ADD Bal

1,080,0000 170,000

Amount 1,700 900,000 3,300 5,000 170,000 1,080,0000

Allowance for Doubtful Debts

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Date

Particulars ADD ADD bal

Amount 1,700 5,000 11,420 18,120

Date 38,169

Particulars o/bal BDE

Amount 2,000 16,120 18,120

bal

11,420

1 mark for each correct entry , mark for amount and mark for other account named excluding closing balance, except the BDE, below, which is worth five marks including calculation

Calculation of ADD

days 30 60 90 120 Over 120

amount 98000 27000 30000 6000 9000

factor 1% 2% 5% 50% 60%

980 540 1500 3000 5400 11420

170000 Total=

B.

( 3 Marks)

List three controls which can be applied to make help ensure that accounts receivable is correctly stated. 1 mark each for: regular reconciliation of subsidiary ledgers sending of customer statements follow up disputed items regular monitoring of payments regular monitoring of doubtful amounts, or other reasonable controls up to 3 marks.

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Question 5 Bank Reconciliation

16 Marks

The bank reconciliation statement for JPG Pty Ltd at March 31 is shown below. JPG Pty Ltd Bank Reconciliation as at March 31
$ Debit Balance as per bank statement Plus unrepresented cheques: 6971 6982 6995 Less Outstanding deposit Credit Balance as per company records $ 3,521 274 591 132

997 4,518 (894) 3,624

The bank statement received at the end of April shows the following: Bank Statement
Statement Period 31/3/01 - 30/4/01 $ 3,521DR 2,627DR 2,901DR 2,280DR 1,756DR 2,223DR 2,735DR 2,812DR 2,923DR 2,453DR 2,551DR 2,361DR 2,209DR 2,341DR 2,815DR 2,392DR 3,053DR 2,444DR 2,836DR 2,587DR 2,750DR 2,439DR 2,626DR 3,027DR 3,179DR

DR CR 31-Mar 1-Apr 2-Apr 4-Apr 5-Apr 7-Apr 8-Apr 11-Apr 12-Apr 13-Apr 15-Apr 16-Apr 17-Apr 19-Apr 20-Apr 21-Apr 23-Apr 24-Apr 25-Apr 27-Apr 29-Apr 30-Apr Balance Brought forward Cash/ cheque 6971 Cash/ cheque Cash/ cheque 7004 7003 Return insufficient funds 7007 Cash/ cheque 7002 Dividend- electronic transfer Cash/ cheque 6995 7008 Cash/ cheque 7006 Cash/ cheque 7009 Cash/ cheque 7011 Cash/ cheque 7010 7012 Interest on Overdraft 894 274 621 524 467 512 77 111 470 98 190 152 132 474 423 661 609 392 249 163 311 187 401 152

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The cash receipts and cash payments journals have recorded for April:
Cash Receipts Date $ 3-Apr 621 4-Apr 524 7-Apr 895 12-Apr 470 15-Apr 152 19-Apr 423 22-Apr 609 23-Apr 249 26-Apr 311 29-Apr 248 4502 Date Cash Payments Cheque No. 1-Apr 7002 4-Apr 7003 5-Apr 7004 7-Apr 7005 8-Apr 7006 11-Apr 7007 14-Apr 7008 18-Apr 7009 22-Apr 7010 24-Apr 7011 28-Apr 7012 30-Apr 7013 $ 98 512 467 351 661 111 474 392 187 163 401 32 3849

The Return-NSF item on the bank statement on April 11 was a dishonoured cheque from a customer. Required: 1. What is the April 30 adjusted cash balance? Ending balance per company records (3 624 + 3 849 4 502) Add: Decreases reported on bank statement but not entered in company records Cheque returned N.S.F. Interest on overdraft Deduct: Receipts reported on bank statement but not entered in company records: Dividend Adjusted bank balance

(10 Marks)

2971

77 152

229 3 200

190 3 010

CR

One mark for correct starting balance, note that the starting balance is a credit balance Cr 3,624 1 marks each for correct treatment of cash receipts ( deduct 4,502 ) and cash payments ( add 3,849 ) People need to be careful when the bank account is in debit (credit in your books). Note in the answer guide we begin with a bank debit therefore we are adding unpresented cheques and deducting outstanding deposits. Alternatively if you put is a book credit (negative beginning balance), you will then add in transit deposits and subtract outstanding cheques. 2 marks each for the adjusting items: Cheque NSF- add 77; Interest add 152 and dividend less 190

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2. Prepare journal entries to adjust the records of the company


Journal Cash at Bank Dividend revenue Accounts Receivable/ Debtors cheque returned Interest Expense Cash at Bank $ 190 77 152 $ 190 229

(6 Marks)

2 marks for first JE 4 marks for second, or may be presented as two separate JE

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