2012S1 PracExamQuestions & Answers(1)

ACCT1501 Practice Exam Questions & Solutions

2012S1

QUESTION 1 – Bank Reconciliation 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 non-sufficient funds (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. 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) Add: Cheque recording error Less: NSF cheque Bank service charge Reconciled balance Balance per Cash account before reconciliation = $4 800 – 90 + 400 + 50 = $5 160

$ 5160 90 (400) (50) $ 4 80 0

 Key: Solve for the unadjusted cash account balance as the missing item given the reconciled balance and, reconciling items.

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) Less: Outstanding cheques Add: Deposits in transit Reconciled balance

$ 5700 (3 000) 2 100 $ 4 80 0

Again, solve the bank statement balance as the missing item given the reconciled balance and reconciling items. Balance per bank before reconciliation = $4 800 – 2 100 + 3000 = $5 700 Part C: Prepare any necessary adjusting journal entries. Debit Bank charges (Interest expense) Cash Accounts Receivable Cash Cash Miscellaneous Expense

Credit

50 50 400 400 90 90

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ACCT1501 Practice Exam Questions & Solutions

2012S1

QUESTION 2 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 2007, SSS collected $85,000 from outstanding accounts. SSS Company’s financial year ends on 31st December. During the year to 31 December 2007, SSS sold goods for cash for $22,000, and on credit for $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 expense for 2007 is recognised based on 2% of credit sales, prepare the entry to record bad debts expense. Debit Credit Bad debts expense [2%*$80,000] Allowance for doubtful debts

$1,600 1,600

(ii) Calculate the net accounts receivable after recognising the bad debts expense..

Accounts receivable: $30,000+$80,000-$85,000-$2,500=$22,500 Allowance for doubtful debts: $4,500+$1,600-$2,500=$3,600

Net accounts receivable= $22,500-$3,600=$18,900 Net A/R

=

A/R

-

ADD

=

22,500

-

3,600

=

18,900 Accounts Receivable

1-Jan-07

o/b

30,000

1-Oct-07

Cash

85,000

Sales

80,000

1-Jul-07

ADD

2,500

31-Dec-07

c/b

110,000 1-Jan-08

o/b

22,500 110,000

22,500

Allowance for Doubtful Debts 1-Jul-07 31-Dec-07

A/R

2,500

1-Jan-07

c/b

3,600

31-Dec-07

o/b

4,500

BDE

1,600

6,100

6,100 1-Jan-08

2

o/b

3600

ACCT1501 Practice Exam Questions & Solutions

2012S1

Part B (i) Assume bad debts expense is determined as an adjusting entry at year end. 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 Bad debts expense [$4,500 - 2,500+X=3,200] Allowance for doubtful debts

$1,200 $1,200

(ii) Calculate the net accounts receivable after the adjusting entry. Accounts receivable: $30,000+$80,000-$85,000-$2,500=$22,500 Allowance for doubtful debts: $3,200

Net accounts receivable= $22,500-$3,200=$19,300

Allowance for Doubtful Debts 1-Jul-07 31-Dec-07

Credit

A/R

2,500

1-Jan-07

c/b

3,200

31-Dec-07

o/b

4,500

BDE

1,200

5,700

5,700 1-Jan-08

3

o/b

3,200

ACCT1501 Practice Exam Questions & Solutions

QUESTION 3 (12 Marks)

2012S1

Inventory

The following information is taken from the accounting records of Eden Ltd for the year ended 31 December 2010.

Jan 1

Inventory

Units 2,000

Mar 10

Purchases

2,200

Jun 25

Sales

1,800

Aug 30

Purchases

1,800

Oct 5

Sales

2,500

Nov 26

Purchases

3,000

Dec 31

Sales

2,000

Purchase price/unit $56 $55

Selling price/unit

$60 $52 $65 $50 $63

Part A: Assume Eden uses the first-in-first-out method of allocating cost to inventories. 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: a) Perpetual Inventory System [6 marks]

COGS =1,800*56+(200*56+2,200*55+100*52)+(1,700*52+300*50)= 341,600 Ending inventory=2,700*50 = $135,000 Gross profit Sales=1,800*60+2,500*65+2,000*63=396,500 COGS=341,600 Gross profit=54,900

2 marks for COGS and ending inventory 1 mark for sales 1 mark for gross profit

DO NOT WRITE BEYOND THIS LINE

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ACCT1501 Practice Exam Questions & Solutions

b)

Periodic Inventory System [6 marks]

Opening inventory = 2,000*56 = 112,000 Purchases = 2,200*55 + 1,800*52 + 3,000*50 =364,600 Closing Inventory = 2,700*50 = 135,000 COGS = Opening inventory + Purchases – Closing inventory = 112,000 + 364,600 – 135,000 = 341,600 Ending inventory=2,700*50 = $135,000 Gross profit Sales=1,800*60+2,500*65+2,000*63=396,500 COGS=341,600 Gross profit=54,900 2 marks for COGS and ending inventory 1 mark for sales 1 mark for gross profit

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2012S1

ACCT1501 Practice Exam Questions & Solutions

QUESTION 4 (10 Marks)

2012S1

DEPRECIATION

Latte On Demand purchased a coffee drink machine on 1 January, 2009, for $44,000. Expected useful life is 10 years. Residual value is $4,000. Under two depreciation methods, annual depreciation and total accumulated depreciation at the end of 2009 and 2010 are as follows: Method A Method B Annual Accumulated Annual Accumulated Depreciation Depreciation Depreciation Depreciation Year Expense Expense 2009 $8,800 $8,800 $4,000 $4,000 2010 7,040 15,840 4,000 8,000

Required: 1. Identify the depreciation method and rate used in each instance. (2 marks)

Method A:

Reducing Balance method 20%

(1 mark)

Method B:

Straight-Line method 10%

(1 mark)

2. Assume use of the same method through 2011. Compute depreciation expense for 2011, accumulated depreciation, and asset book value (carrying amount) at the end of 2011. (6 marks)

Method A: Depreciation rate=$8,800/$44,000=20% Depreciation expense for 2011= 20% *($44,000-$15,840)=20% * $28,160=$5,632 Accumulated depreciation=$15,840+$5,632=$21,472 Book value=$44,000-$21,472=$22,528 (1 mark for each, no penalty for carry-on errors)

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ACCT1501 Practice Exam Questions & Solutions

2012S1

Method B: Depreciation expense=($44,000-4,000)/10=$4,000 Depreciation expense for 2011= $4,000 Accumulated depreciation=$8,000+$4,000=$12,000 Book value=$44,000-$12,000=$32,000 (1 mark for each, no penalty for carry-on errors)

3. Prepare a journal entry to record the depreciation for 2011 under Method B. (2 marks) Debit

Depreciation expense

Credit

4,000

Accumulated depreciation

4,000

(1 mark for each line, no penalty for carry-on errors)

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ACCT1501 Practice Exam Questions & Solutions

QUESTION 5 (16 marks)

2012S1

Financial Statement Analysis

SUC limited is constantly profitable. SUC Limited’s financial statement relationships are as follows: Profit Margin Asset Turnover Current Ratio Debt to Equity Ratio Earnings per Share

7% 1.5 times 2 times 0.5 times $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 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) 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.

a

Asset Turnover Increase

Current Ratio Decrease

Debt to Equity Ratio Increase

Earnings Per Share Decrease

b

Decrease

Increase

Decrease

Decrease

c

Increase

No change

Increase

Decrease

d

No change

Increase

No change

No change

Transaction

PLEASE NOTE THAT THERE IS A LIST OF RATIO FORMULAE PROVIDED ON THE FOLLOWING PAGE.

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ACCT1501 Practice Exam Questions & Solutions

2012S1

RATIO FORMULAE Return on Equity

Operating Profit after Tax Shareholders' Equity

Quality of Earnings Ratio

Cash from Operations Operating Profit after Tax Earnings Before Interest and Tax Total Assets

Return on Assets

Total Assets Total Shareholders’ Equity

Leverage Ratio

Cash From Operations Total Assets

Cash Flow to Total Assets

Current Assets Current Liabilities

Current Ratio

Current Assets - Inventory Current Liabilities

Quick Ratio

Dividend Payout Ratio

Annual Dividends Declared per Share Earnings per Share Operating Profit after Tax Sales

Profit Margin

Sales Total Assets

Total Asset Turnover

Earnings before Interest and Tax Interest Expense

Interest Coverage Ratio

Total Liabilities Total Shareholders' Equity

Debt to Equity Ratio

Average Inventory COGS

Days in Inventory

Average Trade Debtors Credit Sales

Days in Debtors Price/Earnings Ratio

Earnings Per Share

x 365

x 365

Current market price per share Earnings per Share Operating profit after tax – preference share dividends Weighted Average Number of  Ordinary Shares Outstanding

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ACCT1501 Practice Exam Questions & Solutions

2012S1

QUESTION 6 (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 Cash at Bank

CR 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. An ageing analysis shows that $4,000 of Accounts Receivable is estimated to be uncollectible. On 30 June 2010, the directors declared a dividend of $5,000, which the shareholders authorised. The dividend is to be paid on 15 September 2010.

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ACCT1501 Practice Exam Questions & Solutions

2012S1

It is discovered that $10,000 cash received during the year and credited to sales are actually related to services to be delivered in July 2010. $5,000 of wages relating to June 2010 have not been paid and need to be accrued.

Part A (11 Marks) Prepare journal entries for the necessary end of period adjustments. Debit Depreciation Expense – PPE Accumulated Depreciation – PPE (1 mark for each entry)

45 000

Rent Expense Prepaid Rent (1 mark for each entry)

5 000

Bad Debts Expense Allowance for doubtful debts (1 mark for each entry)

3 000

Retained Profits Dividend Payable (1 mark for each entry)

5 000

Sales

10,000

Credit

45 000

5 000

3 000

5 000

Unearned revenue (1 mark for each entry)

10,000

Wages Expense Wages Payable (1/2 mark for each entry)

5,000 5,000

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ACCT1501 Practice Exam Questions & Solutions

2012S1

Part B (6 Marks) Prepare an Income Statement for the year ended 30 June 2010: Dog Company Income Statement for year ended 30 June 2010 Sales (1 mark) Less COGS ( 1 mark if COGS is in correct place) Gross Profit

440 000 265 000 175 000

Less Operating Expenses Interest expense Depreciation expense (1 mark) Rent expense (1 mark) Bad debts expense (1 mark) Wages expense (1 mark)

5 000 45 000 10 000 3 000 85 000

Net Profit

$27 000

Part C (3 Marks) In the Balance Sheet as at 30 June 2010 (show all workings): i.

148 000

What would be the closing balance of retained profits?

Opening Balance Plus Profit for Period Less Dividends declared Closing Balance

34 000 (1 mark) 27 000 (1 mark) 5 000 (1 mark) $56 000 (0 mark)

(1 mark for each item & correct figure but not for the closing balance figure Don’t penalise for carry on errors

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ACCT1501 Practice Exam Questions & Solutions

2012S1

Question 7 Management Accounting and Cost Concepts 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 Factory insurance

11,500 500

Commissions paid Factory supervision

1,600 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) Ending finished goods inventory (Dec 1)

5,700 2,950

 Required: Prepare a Cost of Goods Manufactured statement for the quarter-ended December 1, 2008.

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ACCT1501 Practice Exam Questions & Solutions

2012S1

No penalties for carry on errors!

Bother Ltd Statement of COGM For the quarter-ended Dec 1, 2008 Direct Materials: Beginning raw materials inventory Add: Purchases Materials available Less: Ending inventory Direct materials used Direct labour Manufacturing overhead: Supplies used Insurance Supervision Total overhead costs Manufacturing costs added (or total manufacturing costs) Add: Beginning WIP Total manufacturing costs Less: Ending WIP Cost of Goods Manufactured

0.5 0.5 0.5

3,725 6,000 9,725 2,000 7,725 11,500

0.5 0.5 0.5 0.5 1.0 0.5

2,775 22,000

0.5 0.5 0.5 1.0 0.5

12,000 34,000 15,500 18,500

0.5 0.5 0.5 0.5

825 500 1,450

DO NOT WRITE OUTSIDE THE BOX

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ACCT1501 Practice Exam Questions & Solutions

2012S1

Question 8 CVP analysis Sunset Ltd. manufactures and sells snorkelling gear. In 2011, the company hires a new manager who worked for an international company in China before. He tells the CEO that he knows a supplier in China who would produce the same snorkelling gear as Sunset Ltd and sell it at an extremely low price. He suggests it would be much more profitable for Sunset Ltd. to buy the snorkelling gear at $40 and resell it instead of manufacturing the gear. In fact, the cost for one purchased snorkelling gear ($40) equals the contribution margin per unit when manufacturing it ($40). The new manager argues the decision to buy would be especially profitable, since the company is in need of a new machine for the manufacturing process, which costs $50,000 (useful life of 5 years and no salvage value). Manufacturing fixed costs amount to $100,000. Selling and administration costs have recently been up to $70,000. The amount of snorkelling gear sold has constantly been around 15,000 units per year in the past. For 2011, the company is expecting the same volume and also plans to set the same price again ($70). The CEO asks you whether you also think that buying snorkelling gear instead of manufacturing it would be a good decision. 1. Help the CEO in making a decision by looking at the different impact on profit under the two scenarios (buying versus manufacturing).  (Note: Provide a suggestion for the CEO by looking at profit only; neglect any strategic reasons or similar )

In the following, assume that Sunset Ltd. does not decide to buy and resell the snorkelling gear but to keep manufacturing it. 2. What would the break-even point be for 2011 (provide the calculation of the break-even point and a graphical solution)?

Solution: 1. Revenues = 15,000 * $70 = $1,050,000 (1mark) Total costs (buying) = 15,000 * $40 + selling/admin costs = $670,000 (1mark) Profit (buying) = $380,000 (1mark)

Depreciation expense: $10,000 (1mark) Contribution margin per unit = $40 => at a price of $70, variable costs per unit must be $30 (1mark) Total costs (Manufacturing) = selling/admin costs + fixed costs + variable costs Total costs (Manufacturing) = $70,000 + $110,000 + 15,000*$30 = $630,000 (1mark) Profit = $420,000 (1mark) Hence, the buying scenario results in a profit, which is $40,000 less. The company should keep manufacturing the gear instead of buying despite the new investment of the machine. (1mark)

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ACCT1501 Practice Exam Questions & Solutions

2012S1

2. BEP = $110,000 / ($70-$30) = 2,750 units (1mark for result, 1 mark for graphic)

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ACCT1501 Practice Exam Questions & Solutions

MCQ practice questions You have seen samples of MCQ in the lectures and in your quiz attempts.

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2012S1