ACCT1501 Practice Exam Questions 2011S1 1 QUESTION 1 ACCOUNTS RECEIVABLES • On 1st July, 2007, one of SSS’s customers, BBB, went bankrupt. BBB owes SSS $2,500 and there is no hope for recovering this amount. • On 1 st October, SSS collected $85,000 from outstanding accounts. SSS Company’s financial year ends on 31 st December. • During 2007, SSS sold goods for cash for $22,000, and on credit $80,000. • On 1 st January 2007, SSS Ltd. has a debit balance of $30,000 in Accounts Receivable and a credit balance of $ 4,500 in the Allowance for Doubtful Debts. Required: Part A (i) If bad debts for 2007 are estimated to be 2% of credit sales, prepare the adjusting entry on the 31 st December to record bad debts expense. Debit Credit Bad debts expense Allowance for doubtful debts $1,600 [2%*$80,000] 1,600 (ii) Calculate the net accounts receivable after the adjusting entry. Part B (i) If uncollectible accounts are estimated to be $3,200 from aging receivables, prepare the adjusting entry on the 31 st December to record bad debts expense. Debit Credit Bad debts expense Allowance of doubtful debts $1,200 [$2,500- 500+X=3,200] $1,200 (ii) Calculate the net accounts receivable after the adjusting entry. Accounts receivable: $30,000+$80,000-$85,000-$500=$24,500Allowance for doubtful debts: $3,200 Net accounts receivable= $24,500-$3,200=$21,300
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ACCT1501 Practice Exam Questions 2011S1
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QUESTION 1 ACCOUNTS RECEIVABLES
• On 1st July, 2007, one of SSS’s customers, BBB, went bankrupt. BBB owes SSS $2,500 and there is no hope for recovering this amount.
• On 1st October, SSS collected $85,000 from outstanding accounts. SSS Company’s financial year ends on 31st December.
• During 2007, SSS sold goods for cash for $22,000, and on credit $80,000. • On 1st January 2007, SSS Ltd. has a debit balance of $30,000 in Accounts
Receivable and a credit balance of $ 4,500 in the Allowance for Doubtful Debts.
Required: Part A (i) If bad debts for 2007 are estimated to be 2% of credit sales, prepare the adjusting entry on the 31st December to record bad debts expense. Debit Credit Bad debts expense Allowance for doubtful debts
$1,600 [2%*$80,000]
1,600
(ii) Calculate the net accounts receivable after the adjusting entry.
Part B (i) If uncollectible accounts are estimated to be $3,200 from aging receivables, prepare the adjusting entry on the 31st December to record bad debts expense.
Debit Credit Bad debts expense Allowance of doubtful debts
$1,200 [$2,500-500+X=3,200]
$1,200
(ii) Calculate the net accounts receivable after the adjusting entry. Accounts receivable: $30,000+$80,000-$85,000-$500=$24,500Allowance for doubtful debts: $3,200 Net accounts receivable= $24,500-$3,200=$21,300
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QUESTION 2 (16 Marks) Inventory
The following information is taken from the accounting records of ASB Ltd for the
year ended 31 December 2010. ASB Ltd uses a perpetual inventory control system.
Units
Purchase price/unit
Selling price/unit
Jan 1 Inventory 2,000 $56 Mar 10 Purchases 2,200 $55 Jun 25 Sales 1,800 $60 Aug 30 Purchases 1,800 $52 Oct 5 Sales 2,500 $65 Nov 26 Purchases 3,000 $50 Dec 31 Sales 2,000 $63
Part A
Determine the cost of ending inventory as at 31 December 2010 and the cost of goods
sold and gross profit for the year ended 31 December 2010, assuming:
VIC Limited is constantly profitable. VIC Limited’s financial statement relationships are as follows:
Profit Margin 7% Asset Turnover 1.5 times Current Ratio 2 times Debt to Equity Ratio 0.5 times Earnings Per Share $0.15
For each of the following transactions or events, indicate the directional effect (increase, decrease, no change) on the Asset Turnover, Current Ratio, Debt to Equity Ratio, and Earnings Per Share. Note that you must write either ‘increase’, ‘decrease’, or ‘no change’. A blank response will be marked as incorrect. a. Switched to LIFO from FIFO for inventory valuation in a period of decreasing
prices (4 marks).
b. Announced and conducted a 3-for-1 share split. (4 marks) c. Switched to the reducing balance depreciation method from the straight-line
depreciation method for machinery acquired two years ago (i.e. this is the second year in which the depreciation is recorded). This machinery was expected to last for 5 years with no residual value. (4 marks)
SUC limited is constantly profitable. SUC Limited’s financial statement relationships are as follows:
Profit Margin 7% Asset Turnover 1.5 times Current Ratio 2 times Debt to Equity Ratio 0.5 times Earnings per Share $0.15
For each of the following transactions or events, indicate the directional effect (increase, decrease, no change) on the Asset Turnover, Current Ratio, Debt to Equity Ratio, and Earnings Per Share. Note that you must write either ‘increase’, ‘decrease’, or ‘no change’. A blank response will be marked as incorrect. a. Switched to LIFO from FIFO for inventory valuation in a period of increasing
prices. (4 marks)
b. Ordinary shares are issued for $175 000. (4 marks)
c. Switched to the reducing balance depreciation method form the straight-line depreciation method for machinery acquired two years ago (i.e. this is the second year in which the depreciation is recorded). This machinery was expected to last for 5 years with no residual value. (4 marks)
d. A machine costing $80 000, on which $60 000 of depreciation was charged, is
sold for $20 000. (4 marks) Record your answer in the table below.
Transaction
Asset Turnover
Current Ratio
Debt to Equity Ratio
Earnings Per Share
a
b
c
d
PLEASE NOTE THAT THERE IS A LIST OF RATIO FORMULAE
PROVIDED ON THE FOLLOWING PAGE.
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RATIO FORMULAE
Return on Equity
Operating Profit after Tax Shareholders' Equity
Quality of Earnings Ratio Cash from Operations Operating Profit after Tax
Return on Assets
Earnings Before Interest and Tax Total Assets
Leverage Ratio Total Assets Total Shareholders’ Equity
Cash Flow to Total Assets Cash From Operations Total Assets
Current Ratio Current Assets Current Liabilities
Quick Ratio Current Assets - Inventory Current Liabilities
Dividend Payout Ratio Annual Dividends Declared per Share Earnings per Share
Profit Margin Operating Profit after Tax Sales
Total Asset Turnover Sales Total Assets
Interest Coverage Ratio Earnings before Interest and Tax Interest Expense
Debt to Equity Ratio Total Liabilities Total Shareholders' Equity
Days in Inventory Average Inventory COGS
x 365
Days in Debtors Average Trade Debtors Credit Sales
x 365
Price/Earnings Ratio Current market price per share
Earnings per Share
Earnings Per Share
Operating profit after tax –preference share dividends
Weighted Average Number of Ordinary Shares Outstanding
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QUESTION 4A (20 Marks) ADJUSTING ENTRIES AND FINANCIAL STATEMENTS
The following pre-adjusted trial balance has been prepared for Dog Company as at 30 June 2010 (for the 12 months beginning on 1 July 2009):
DR CR
Cash at Bank 10,000
Accounts Receivable 200,000
Allowance for Doubtful Debts 1,000
Inventory 100,000
Prepaid Rent 10,000
Property, Plant and Equipment 450,000
Accumulated Depreciation - PPE 200,000
Accounts Payable 60,000
Bank loan 50,000
Contributed Capital 310,000
Retained Profit at 1 July 2009 34,000
Sales 450,000
Cost of Goods Sold 265,000
Interest Expense 5,000
Wages Expenses 80,000
Rent Expense 5,000
1,115,000 1,115,000
The following information is given which may give rise to year end adjustments: • Depreciation on Property, Plant and Equipment is provided for on a straight line
basis at 10% per annum. • The balance in Prepaid Rent relates to the 12 month period from 1 January 2010 to
31 December 2010. • It is estimated that 2% of the Balance of Accounts Receivable (before any
provisions) will prove to be uncollectible. • On 30 June 2010, the directors declared, which the shareholders authorised, and
provided for a dividend of $5,000, to be paid on 15 September 2009.
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• It is discovered that $10, 000 cash received during the year and credited to the sales related to services to be delivered in July 2010.
• $5,000 of wages relating to June 2010 has not been paid and needs to be accrued. Part A (11 Marks) Prepare journal entries for the necessary end of period adjustments. (11 marks)
Debit Credit
Part B (6 Marks) Prepare an Income Statement for the year ended 30 June 2010: (6 marks)
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Part C (3 Marks) In the Balance Sheet as at 30 June 2010 (show all workings):
i. What would be the closing balance of retained profits?
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QUESTION 4B ADJUSTING ENTRIES AND FINANCIAL STATEMENTS The following pre-adjusted trial balance has been prepared for Cookie Company as at
30 June 2011(for the 12 months beginning on 1 July 2010):
Cash at Bank
$30,000
Accounts Receivable $150,000 Inventory $80,000 Prepaid Rent $20,000 Property, Plant and Equipment (PPE) $535,000 Accumulated Depreciation - PPE $140,000 Accounts Payable $65,000 Bank Loan $100,000 Contributed Capital $205,000 Retained Profit at 1 July 2010 $35,000 Sales $400,000 Cost of Goods Sold $140,000 Interest Expense $5,000 Wages Expenses $30,000 Rent Expense $15,000 $975,000
The following information is given which may give rise to year end adjustments: • Depreciation on Property, Plant and Equipment (PPE) amounts to $66,875.
• The company discloses that $30,000 of sales revenue received during June 2011
relates to services to be performed in July 2011 • Interest of $3,000 is owed to the bank at year end.
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Part A Prepare journal entries for the necessary end of period adjustments.
Part B (8 Marks) Prepare an Income Statement for the year ended 30 June 2011:
Sales Less COGS Gross Profit Less Operating Expenses Interest Depreciation Rent Wages Expense Net Profit
8 000 66 875 15 000 30 000
370 000 140 000 230 000
119 875
$110 125
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Part C (4 Marks)
Prepare an extract from the Balance Sheet as at 30 June 2011 showing the total Current Liabilities.
Cash at Bank 30 000 Accounts Payable 65 000 Interest Payable 3 000 Unearned Revenue 30 000 TOTAL CURRENT LIABILITIES $128 000
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Question 5A – Bank Reconciliation Question ASB Ltd. received its bank statement for the month ending 30 June, and reconciled the statement balance to the 30 June balance in the Cash account. The reconciled balance was determined to be $4800. The reconciliation recognised the following items:
1. Deposits in transit were $2100. 2. Outstanding cheques totalled $3000. 3. Bank service charges shown as a deduction on the bank statement were $50. 4. An NSF cheque from a customer for $400 was included with the bank
statement. The firm had not been previously notified that the cheque had been returned NSF.
5. In dealing with the review of cheques that have been paid out, there was a cheque actually written for $890, which has been mistakenly recorded as a disbursement of $980. (Original Q: Included in the cancelled cheques was a cheque actually written for $890. However, it had been recorded as a disbursement of $980.)
Part A: What was the balance in ASB Ltd’s cash account before recognising any of the above reconciling items? (Show all the necessary steps.) Solution approach: Set up a bank reconciliation in the usual format, enter the known
information, and then work backwards to solve for the beginning balances in the company’s Cash account and on the bank statement.
Indicated balance (per books) $ 5160 Less: NSF cheque (400) Bank service charge (50) Reconciled balance $4 800 Balance per Cash account before reconciliation = $4 800 – 90 + 400 + 50 = $5 160 Key: To solve for the beginning (i.e., indicated) balances, the effects of reconciling items must be reversed out of the known ending (i.e., reconciled) balances. Part B: What was the balance shown on the bank statement before recognising any of the above reconciling items? (Show all the necessary steps.) Indicated balance (per bank) $ 5700
Part C: Prepare any necessary adjusting journal entries.
journal entries. Dr. Bank charges 50 Cr. Cash at Bank 50 Dr. Accounts Receivable 400 Cr. Cash at Bank 400
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QUESTION 5B – Bank Reconciliation AAA Ltd. received its bank statement for the month ending 30 June, and reconciled the statement balance to the 30 June balance in the Cash account. The reconciled balance was determined to be $5,000. The reconciliation recognised the following items:
1. Deposits in transit were $2 000. 2. Outstanding cheques totalled $3 000. 3. Interest revenue shown as on the bank statement but not recorded on the
company’s book was $30. 4. An NSF cheque from a customer for $400 was included with the bank
statement. The firm had not been previously notified that the cheque had been returned NSF.
Required: Part A: What was the balance in AAA Ltd’s cash account before recognising any of the above reconciling items? (Show all the necessary steps.) Indicated balance (per books) $5 370 Less: NSF cheque (400) Add: Interest revenue 30 Reconciled balance $5 000 Balance per Cash account before reconciliation = $5 000 – 30 + 400 = $5 370 Part B: What was the balance shown on the bank statement before recognising any of the above reconciling items? (Show all the necessary steps.) Indicated balance (per bank) $ 6 000 Add: Deposits in transit 2 000 Less: Outstanding cheques (3 000) Reconciled balance $5 000
Balance per bank before reconciliation = $5 000 – 2 000 + 3 000 = $6 000
Part C: Prepare any necessary adjusting journal entries. Debit Credit Accounts receivable Cash at Bank Cash at Bank Interest revenue
400 30
400 30
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QUESTION 6 (13 marks) Introduction to management accounting The following information comes from the accounting records of Bother Ltd. for the quarter-ended December 1, 2008:
$ Purchases of raw materials 6,000 Supplies used 825 Direct labour cost 11,500 Factory insurance 500 Commissions paid 1,600 Factory supervision 1,450 Advertising 800 Beginning work-in progress inventory (Sept 1) 12,000 Ending work-in-progress inventory (Dec 1) 15,500 Beginning raw materials inventory (Sept 1) 3,725 Ending raw materials inventory (Dec 1) 2,000 Beginning finished goods inventory (Sept 1) 5,700 Ending finished goods inventory (Dec 1) 2,950
Required: Prepare a Cost of Goods Manufactured statement for the quarter-ended December 1, 2008.
DO NOT WRITE OUTSIDE THE BOX
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Case Study Practice Exam Questions Case Study practice exam questions are from the textbook and can be found in the home work questions. Please attempt these case study questions under exam type conditions, i.e. read the questions and write the response within 10 to 12 minutes. The answers to these case studies are available on BB under homework solutions with each week’s solutions. MCQ practice questions You have seen samples of MCQ in the lectures and in your quiz attempts; you have already had plenty of practice with MCQ.
