2012S1 PracExamQuestions
Transcript of 2012S1 PracExamQuestions
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QUESTION 1 Bank Reconciliation
ASB Ltd. received its bank statement for the month ending 30 June, and reconciledthe statement balance to the 30 June balance in the Cash account. The reconciledbalance 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 acheque actually written for $890, which has been mistakenly recorded as a
disbursement of $980.
Part A: What was the balance in ASB Ltds cash account before recognising any ofthe above reconciling items? (Show all the necessary steps.)
Part B: What was the balance shown on the bank statement before recognising any ofthe above reconciling items? (Show all the necessary steps.)
Part C: Prepare any necessary adjusting journal entries.Debit Credit
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QUESTION 2 ACCOUNTS RECEIVABLES
On 1st July, 2007, one of SSSs customers, BBB, went bankrupt. BBB owesSSS $2,500 and there is no hope for recovering this amount.
On 1st October 2007, SSS collected $85,000 from outstanding accounts. SSSCompanys 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 AccountsReceivable and a credit balance of $ 4,500 in the Allowance for DoubtfulDebts.
Required:Part A(i) If bad debts expense for 2007 is recognised based on 2% of credit sales, preparethe entry to record bad debts expense.
Debit Credit
(ii) Calculate the net accounts receivable after recognising the bad debts expense..
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Part B(i) Assume bad debts expense is determined as an adjusting entry at year end. Ifuncollectible accounts are estimated to be $3,200 from aging receivables, prepare theadjusting entry on the 31st December to record bad debts expense.
Debit Credit
(ii) Calculate the net accounts receivable after the adjusting entry.
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QUESTION 3 (12 Marks) Inventory
The following information is taken from the accounting records of Eden Ltd for the
year ended 31 December 2010.
UnitsPurchaseprice/unit
Sellingprice/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: 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 [6marks]
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b) Periodic Inventory System [6 marks]
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QUESTION 4 (10 Marks) 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 depreciationmethods, annual depreciation and total accumulated depreciation at the end of 2009
and 2010 are as follows:
Year
Method A Method BAnnual
DepreciationExpense
AccumulatedDepreciation
AnnualDepreciation
Expense
AccumulatedDepreciation
2009 $8,800 $8,800 $4,000 $4,0002010 7,040 15,840 4,000 8,000
Required:
1. Identify the depreciation method and rate used in each instance.(2 marks)
Method A:
Method B:
2. Assume use of the same method through 2011. Compute depreciation expensefor 2011, accumulated depreciation, and asset book value (carrying amount) at
the end of 2011. (6 marks)
Method A:
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Method B:
3. Prepare a journal entry to record the depreciation for 2011 under Method B.(2 marks)
Debit Credit
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QUESTION 5 (16 marks) Financial Statement Analysis
SUC limited is constantly profitable. SUC Limiteds financial statement relationshipsare 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 EquityRatio, 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 increasingprices. (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 secondyear in which the depreciation is recorded). This machinery was expected to lastfor 5 years with no residual value. (4 marks)
d. A machine costing $80 000, on which $60 000 of depreciation was charged, issold for $20 000. (4 marks)
Record your answer in the table below.
TransactionAsset
TurnoverCurrentRatio
Debt toEquity Ratio
Earnings PerShare
a
b
c
d
PLEASE NOTE THAT THERE IS A L IST OF RATIO FORMULAEPROVIDED ON THE FOLLOWING PAGE.
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RATIO FORMULAE
Return on EquityOperating Profit after Tax
Shareholders' Equity
Quality of Earnings RatioCash from Operations
Operating Profit after Tax
Return on AssetsEarnings Before Interest and Tax
Total Assets
Leverage RatioTotal Assets
Total Shareholders Equity
Cash Flow to Total AssetsCash From Operations
Total Assets
Current RatioCurrent Assets
Current Liabilities
Quick RatioCurrent Assets - Inventory
Current Liabilities
Dividend Payout RatioAnnual Dividends Declared per Share
Earnings per Share
Profit Margin
Operating Profit after Tax
Sales
Total Asset TurnoverSales
Total Assets
Interest Coverage RatioEarnings before Interest and Tax
Interest Expense
Debt to Equity RatioTotal Liabilities
Total Shareholders' Equity
Days in Inventory Average InventoryCOGS
x 365
Days in DebtorsAverage Trade Debtors
Credit Salesx 365
Price/Earnings Ratio Current market price per shareEarnings per Share
Earnings Per Share Operating profit after tax preference share dividends
Weighted Average Number of
Ordinary Shares Outstanding
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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 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 linebasis at 10% per annum.
The balance in Prepaid Rent relates to the 12 month period from 1 January 2010 to31 December 2010.
An ageing analysis shows that $4,000 of Accounts Receivable is estimated to beuncollectible.
On 30 June 2010, the directors declared a dividend of $5,000, which theshareholders authorised. The dividend is to be paid on 15 September 2010.
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It is discovered that $10,000 cash received during the year and credited to sales areactually 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 Credit
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Part B (6 Marks)Prepare an Income Statement for the year ended 30 June 2010:
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 7 Management Accounting and Cost Concepts
The following information comes from the accounting records of Bother Ltd. for thequarter-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) 15,500Beginning 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.
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Question 8 CVP analysis
Sunset Ltd. manufactures and sells snorkelling gear. In 2011, the company hires anew manager who worked for an international company in China before. He tells theCEO 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 muchmore profitable for Sunset Ltd. to buy the snorkelling gear at $40 and resell it insteadof 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 thecompany 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 costsamount 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 setthe same price again ($70). The CEO asks you whether you also think that buyingsnorkelling 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 profitunder the two scenarios (buying versus manufacturing). (Note: Provide asuggestion for the CEO by looking at profit only; neglect any strategic reasonsor similar)
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In the following, assume that Sunset Ltd. does not decide to buy and resell thesnorkelling gear but to keep manufacturing it.
2. What would the break-even point be for 2011 (provide the calculation of thebreak-even point and a graphical solution)?
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MCQ practice questions
You have seen samples of MCQ in the lectures and in your quiz attempts.