Trail balance and balance sheet for accounts

BACHELOR OF BUSINESS YEAR 1 SEMESTER 1, 2009 FINAL EXAMINATION Subject Code : ACC101 Subject Name : FINANCIAL ACCOUNTING 1 This examination carries 70% of the total assessment for this subject. Examiner(s) MR GOOI CHEE SAN Moderator(s) Internal : MR SELVANADAN MUNIAPPAN External : Day : Date : Time : Time allowed : Reading – 10 MINUTES Writing – 3 HOURS INSTRUCTION(S): 1. This examination consists of TWO (2) sections: SECTION A consists of TWENTY (20) multiple-choice questions. Answer ALL questions in the multiple choice answer sheet provided. SECTION B consists of FOUR (4) questions. Answer ALL questions in the answer book provided. 2. Writing on the examination answer book is NOT permitted during reading time. 3. This is a CLOSED BOOK examination. 4. Students are NOT permitted to retain this examination paper. 5. Students MUST pass this examination in order to pass the subject. 6. Formula sheet is attached. (This question paper consists of 2 sections in 15 printed pages, including cover page) ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 2 SECTION A – Multiple Choice Questions (20 Marks) Answer ALL questions. Each question carries 1 mark. 1. A balance sheet: a. shows the financial situation of a company at a specific point in time b. is a summary of all of the revenues minus all of the expenses for an accounting period c. shows the changes that took place in the amount of shareholders’ equity during a period d. is a list of all the cash collected and cash paid during a period 2. The statement of changes in shareholders’ equity: a. describes the financial situation of a company at a specific point in time. b. is a summary of all of the revenues minus all of the expenses for an accounting period. c. shows the changes that took place in the amount of shareholders’ equity during a period. d. is a list of all the cash collected and cash paid during a period. 3. The Tom’s Wear Statement of Cash Flows for October showed the following: Cash from operating activities $ 1,600 Cash for investing activities $(2,000) Cash from financing activities $ ? Net change in cash $ 5,500 Cash flows from financing activities were: a. $1,900. b. $5,700. c. $5,900. d. $9,100. 4. The Tom’s Wear balance sheet has assets of $6,500 and liabilities of $1,000. Its shareholders’ equity is: a. $1,000. b. $5,500. c. $6,500. d. $7,500. ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 3 5. The purpose of the financial statements is to provide financial information needed by: a. investor and creditors b. regulators c. vendors and customers d. all of the above 6. Reliable information: a. needs to be current so users of financial statements can use it to make decisions. b. is accurate, truthful, and can be verified. c. allows users to make comparisons across financial statements. d. is presented the same way period after period. 7. On February 1, Tom’s Wear paid $300 for three months’ worth of advertising beginning on February 1. What is the balance in the Prepaid advertising account at March 31? a. $0 b. $100 c. $200 d. $300 8. The going-concern assumption refers to: a. an assumption is made that a company will continue to be in business in the future b. measuring the financial statement items at their cost at the time of the transaction c. the use of monetary units, such as dollars, to measure the value of financial statement amounts d. the way revenues and expenses are recognized 9. If a company’s expenses for the period are greater than its revenues, then the company will report: a. net income. b. a decrease in cash c. an increase in cash. d. a net loss 10. An accrual is: a. a transaction in which the action comes before the exchange of cash b. a transaction in which the exchange of dollars comes before the action takes place c. both of the above d. none of the above ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 4 11. Adjustments are usually made: a. during the accounting period when deferrals are discovered b. at the end of the accounting period after the financial statements are prepared c. during the accounting period when accruals get too big d. at the end of the accounting period before financial statements are prepared 12. Depreciation is: a. the loss in market value of an asset. b. the allocation of a long-term asset’s cost to an expense account over the asset’s life. c. an increase in an asset’s value over time or usage. d. none of the above 13. Which of the following should be recorded as an expense in the period when cash is paid? a. office rent paid for 18 months in advance of use b. payment to buy a piece of equipment c. payment to overhaul and improve a machine to make it last longer d. motor vehicle parking charge of $5.00 14. All of the following payments were made by UIB Co. for machinery the company bought and used during the year. Which of these expenditures should NOT be capitalized? a. a payment made to install the machinery at the factory b. the cost of insurance while the machine was in transit from the seller’s warehouse c. the cost of electricity use to operate the machine for the first year d. the costs of testing the machine in preparation for use 15. On June 1, 2008, Fred McGriff Company bought office computers that cost $43,000, with an estimated useful life of 10 years and an estimated salvage value of $3,000. The company uses the straight-line method of depreciation and has a calendar year end. For the year ended December 31, 2008, McGriff Company will report depreciation expense of: a. $2,333. b. $2,666. c. $3,000. d. $4,000 ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 5 16. Which statement below best explains the credit terms of 2/10, n/30? a. The buyer will receive a 2 percent discount if it pays within ten days of the purchase. b. The buyer will receive a 10 percent discount if it pays within two days. c. The buyer will receive a 10 percent discount if it pays within thirty days. d. The buyer will receive a 2 percent discount if it pays within thirty days. 17. Fargo Engines, Inc., sells part number 45G to toy manufacturers around the world. Information about part number 45G is contained in the table below. Fargo uses a FIFO periodic inventory system. Number of Units Unit Cost Total Cost Beginning inventory 2,000 $8.00 $16,000 Purchase 3,000 $8.20 $24,600 Purchase 5,000 $8.60 $43,000 Totals 10,000 $83,600 Determine the cost of goods sold and ending inventory value of part 45G, if 2,000 units remain unsold in inventory at the end of the accounting period. a. Cost of goods sold is $60,000 and ending inventory is $23,600 b. Cost of goods sold is $62,300 and ending inventory is $21,300 c. Cost of goods sold is $66,400 and ending inventory is $17,200 d. Cost of goods sold is $73,600 and ending inventory is $10,000 18. Segregation of duties means that the: a. person who has the physical custody of cash is not the same person who does the record keeping for cash b. person who makes the daily bank deposit should not be the same person who does the record keeping for cash c. cashier should not have the key to the records tape inside the cash register d. all of the above 19. The sales method for estimating bad debts is calculated using: a. aging of accounts receivable b. a percentage of credit sales c. a percentage of net accounts receivable d. the current balance in accounts receivable ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 6 20. Tom’s Wear Co. purchased a brand new office equipment for $89,500, received $57,000 for the sale of used equipment, it collected $ 32,000 from sale of merchandise and repaid a loan of $30,000. The amount of net cash from INVESTING activities is: a. $(32,500) b. $146,500 c. $116,500 d. $87,000 ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 7 SECTION B (80 Marks) Answer ALL questions. Question 1 Huang Pu is a retail business. It draws up its financial statements once a year. It has been using the periodic inventory system since the beginning. Its financial year is the end of February each year. A trial balance as at 28 February 2009 is shown below: Huang Pu: Trial balance as at 28 February 2009 Account Title DR $'000 CR $'000 Accounts payable 380 Accounts receivable 508 Accumulated depreciation, at 01.March.2008 · building 70 · office equipment 80 Advertising expense 10 Allowance for doubtful debts 17 Capital 710 Cash at bank 38 Discount allowed 20 Discount received 30 Drawings 65 Insurance expense 33 Interest expense 11 Inventory 01 March 2008 143 Land and building 650 Lighting and Power expense 52 Miscellaneous operating expenses 25 Notes payable, due in 2021 120 Office equipment, at cost 200 Prepaid insurance 36 Purchases 852 Salaries and wages expenses 217 Sales 1593 Sales return 47 Transport inwards expense 18 Transport outwards expense 75 TOTAL 3,000 3,000 (IGNORE GOODS & SERVICES TAX) ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 8 Other data given: (i) The prepaid insurance indicated in the above is valid from 01 February 2009 to 31 January 2010. (ii) The depreciation charges for building $6,000 and for office equipment $40,000 for the financial year had not yet been adjusted. (iii) The Allowance for Doubtful Debts should be increased to $20,000. (iv) On 15 February 2009, Huang Pu advertised its products in the local newspaper. The advertisement cost of $2,000 was given a credit period of 30 days. No entry was made at all for this transaction. (v) A physical inventory count was taken at the end of the day on 28 February 2009 and it valued at $123,000. REQUIRED: (a) Prepare a detailed Income Statement for the year ended 28 February 2009; and (10 marks) (b) A Statement of Owner’s Equity for the year and a detailed Balance Sheet as at 28 February 2009. (10 marks) ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 9 Question 2 Ling Yun has prepared its final accounts as below: Balance Sheet as at 31 March: 2 0 0 9 2 0 0 8 Current assets Cash at bank Accounts receivables Inventory Non-current assets Motor vehicle Less: Accumulated depreciation Office equipment Less: Accumulated depreciation TOTAL ASSETS Current liabilities Salary payable Accounts payable Non-current liabilities Bank loan TOTAL LIABILITIES NET ASSETS Owner’s Equity Beginning capital Add: Net profit Less: Drawings Ending capital $’000 106 300 251 300 (80) 250 (105) 12 178 190 0 $’000 657 220 145 1022 190 832 374 480 854 22 832 $’000 16 210 154 190 (20) 200 (100) 6 140 146 130 $’000 380 170 100 650 276 374 346 50 396 22 374 Ling Yun: Income Statement for the year ended 31 March 2009 $’000 $’000 Sales Less: Cost of goods sold Add: Interest income Less: Expenses Interest expense Depreciation expense of motor vehicle Depreciation expense of office equipment Salary expense Sundry operating expenses Net profit 10 60 50 600 8 3000 (1800) 1200 8 1208 728 480 ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 10 Notes to the accounts: (i) Ling Yun collected the interest revenue as it arose. It paid the interest expense and sundry operating expenses immediately when incurred during the year. (ii) On 5 April 2008 Ling Yun bought a fleet of motor vehicles for $110,000 cash. (iii) During the financial year Ling Yun sold office equipment for $5,000 cash. The original cost was $50,000 and its accumulated depreciation prior to the disposal was $45,000. (iv) On 2 April 2008, Ling Yun bought brand new office equipment for $100,000 cash. (v) In the middle of the financial year, Ling Yun redeemed the bank loan. REQUIRED: (a) Prepare a detailed Cash Flow Statement of Ling Yun for the year ended 31 March 2009. (16 marks) (b) The owner of Ling Yun could not understand why the net profit for the year was so much, $480,000 but the cash at bank did not increase by the same amount. He said, “based on the above facts, some body must have stolen a lot of money from the business”. Do you agree with the owner? Discuss. (4 marks) ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 11 Question 3 (a) You are given the following additional information on Ling Yun: At 31 March 2007, its balance sheet showed Current assets $306,000 Non-current assets $310,000 Current liabilities $140,000 Non-current liabilities $130,000 Net Assets $346,000 In the financial year 31 March 2008, the interest expense was taken as $13,000 for the purpose of calculating the Return on Total Asset. REQUIRED: Use the financial statements of Ling Yun in Question 2 and the additional information provided in the above, calculate for the two years, 2009 and 2008, (i) The Debt Ratio (2 marks) (ii) The Return on Total Assets (2 marks) (iii) The Return on Owner’s Equity (2 marks) (iv) Interpret the ratios that you have calculated in (i), (ii) and (iii) (4 marks) ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 12 (b) Bixi is a marketing consultancy firm. It updates its accounts everyday. Indicate the immediate effect of the following errors on each of the accounting elements described in the column headings below, using the following code: O = overstated U = understated NE = no effect Copy the table below before answering: Error Net Profit Total Assets Total Liabilities Owner’s Equity Example: Received $500 cash for advice given to a customer, but recorded the transaction as $50. U U NE U (i) Bought motor vehicle $29,999 cash for office use. It was recorded as DR Transport expense, CR Cash. (ii) Bixi received general legal service (costing $100), terms n/30. No entry was made. (iii) Paid cash for its electricity used for the month. It was recorded twice. (iv) The owner of Bixi took $222 cash from the business to pay for his wife’s slimming course. It was recorded as DR Sundry operating expense, CR Cash. (v) Now, Bixi collected $55,550 for consultancy service provided last year. It was recorded as DR. Cash CR. Service Fee Revenue. (10 marks) ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 13 Question 4 (a) The information is provided by Liu Rong Co at the beginning of January 2009: On 01 January 2009, it was noted that the following cheques were still outstanding. Cheque no. 6001 $1,000 Cheque no. 6002 $2,000 Cheque no. 6003 $3,000 The following information is extracted from the books of Liu Rong Co. Cash at Bank Account Date 1/1 2/1 8/1 29/1 29/1 30/1 31/1 Particulars Balance b/d Deposit Deposit Deposit Deposit Deposit Deposit $ 14,000 6,600 8,800 7,700 7,700 3,000 5,500 53,300 Date 3/1 9/1 14/1 20/1 23/1 31/1 31/1 Particulars Cheque no 6004 Cheque no 6005 Cheque no 6006 Cheque no 6007 Cheque no 6008 Cheque no 6009 Balance c/d $ 123 456 789 1,100 4,400 3,432 43,000 53,300 The Bank Statement for January 2009 below was issued by Liu Rong Co’s banker. Liu Rong Co: Bank Statement for January 2009 Date Particulars DR $ CR $ Balance $ 1/1 3/1 4/1 8/1 9/1 10/1 15/1 18/1 24/1 29/1 31/1 31/1 31/1 31/1 31/1 Balance b/d Cheque no 6002 Deposit Deposit Cheque no 6005 Cheque no 6004 Bank Commission Cheque no 6006 Cheque no 6008 Cheque no 1111 Service charge Deposit Interest Deposit Cheque no 6001 2,000 456 123 80 789 4,000 2,222 20 1,000 6,600 8,800 5,500 18 7,700 20,000 CR 18,000 CR 24,600 CR 33,400 CR 32,944 CR 32,821 CR 32,741 CR 31,952 CR 27,952 CR 25,730 CR 25,710 CR 31,210 CR 31,228 CR 38,928 CR 37,928 CR ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 14 Notes: (i) On 29 January, Liu Rong Co deposited $7,700 once but it was wrongly recorded twice. (ii) On 30 January, a cheque $3,000 received from a customer was deposited, but it was dishonoured. (iii) The correct amount for cheque no 6008 was $4,400. (iv) The cheque no 1111 was issued by Lew Long Co, not Liu Rong Co. REQUIRED: (i) Update the Cash at Bank Account of Liu Rong Co. (6 marks) (ii) Prepare a Bank Reconciliation of Liu Rong as of 31/1. (6 marks) (b) Xuan Kai Men Co is a wholesaler. It imports goods from Thailand in bulk and sells them to the retailers in small quantity. Its financial year end is 31 December each year. On 01 January 2008 an extract of its account balances are shown below: Accounts Receivables $1,000,000 Less: Allowance for Doubtful Debts 50,000 $ 950,000 During the year 2008, the following events took place: Items $ Sales 12,240,000 Sales return 30,000 Cash collected 12,000,000 ABC Retailer owed 10,000 ABC Retailer, a customer, declared bankruptcy and did not pay the amount owed. Accounting Policy Xuan Kai Men Co uses the Allowance Method of accounting for bad debts. The Allowance for Doubtful Debts is calculated base on 5% of Accounts Receivables after the bad debts have been written off. REQUIRED: Show the Accounts Receivables and the Allowance for Doubtful Debts ledger accounts (T- accounts) of Xuan Kai Men Co for the whole year of 2008. (8 marks) *** END OF EXAMINATION PAPER *** ACC101 –FINANCIAL Accounting 1 (Semester 1, 2009 Final Examination) Page 15 FORMULA SHEET 100% Sales Net Profit Net  100% Sales Net Profit Gross  sLiabilitie Current AssetsCurrent sLiabilitieCurrent tsQuick Asse AssetsTotal sLiabilitie Total 100% Assets TotalAverage Expense InterestProfit Net   100% Equity sOwner' Average Profit Net  Inventory Average Sold Goodsof Cost TurnoverInventory YearBusiness in Daysof Number Receivable AccountsAverage Sales Credit Net TurnoverReceivable Accounts YearBusiness in Daysof Number