Exam February 2017, questions PDF

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VERSION 1

ACCTG 102

UNIVERSITY OF AUCKLAND SUMMER SEMESTER, 2017 Campus: City

ACCOUNTING Accounting Concepts (Time allowed: THREE hours) NOTE:

This exam consists of two compulsory sections as follows:

Section A: Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Section B: Questions 8 – 17

13 marks 16 marks 9 marks 20 marks 6 marks 7 marks 9 marks Multiple Choice 20 marks 100 marks

Total Section A:

All questions in this section are compulsory. Answer this section in the lined Examination Answer Booklet provided. Ignore Goods and Services Tax (GST). You should show ALL workings, as your workings will be graded. Full marks will be given only where a solution is supported by clearly labelled workings. For journal entries, narrations are NOT required. Write down supporting assumptions, especially if you have difficulty interpreting a question or are unsure of the question’s requirements. Section B : All multiple choice questions in this section are compulsory. Answer this section by circling the preferred choice on the coloured answer sheet provided on Page 13. Hand in the answer sheet with the Examination Answer Booklet. Ignore Goods and Services Tax (GST).

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ACCTG 102

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ACCTG 102 SECTION A

Question 1: Jason is the owner of Topend Limited. The company sells high end laptops. The company's bestselling laptop product item is the TopX1. The cost of the TopX1 laptop is expected to increase over time. Assume that Jason has decided to use a periodic inventory system and now must perform some analysis to choose a cost flow assumption for his TopX1 laptop inventory. The following transactions occurred in the months from June 2017 to September 2017: Date June

3 17 26

July

3 30 31

August

2 14 31

September

5 28

Jason buys four TopX1 laptops on account from Computer Suppliers Limited for $4,800. Jason sells two TopX1 laptop for $2,300 each, in cash. Jason pays the amount owed to Computer Suppliers Limited. Jason buys two TopX1 laptop on account from Computer Suppliers Limited for $2,472. Jason sells four TopX1 laptops for $2,300 each, in cash. Jason pays the amount owed to Computer Suppliers Limited. Jason buys four TopX1 laptops on account from Computer Suppliers Limited for $5,000. Jason sells six TopX1 laptops for $2,300 each, in cash. Jason pays the amounts owed to Computer Suppliers Limited. Jason buys six TopX1 laptops on account from Computer Suppliers Limited for $7,560. Jason sells two TopX1 laptop for $2,300 each, in cash.

Required: (a)

Determine the cost of goods available for sale at the end of September 2017. Assume that Topend Limited had six TopX1 laptops on hand as at 1 June 2017 at a cost of $1,190 each. (5 marks)

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ACCTG 102

Question 1 continued:

(b)

For the period from 1 June 2017 to 30 September 2017: (i)

Calculate the ending inventory under the First In First Out (FIFO) method as at September 2017.

(ii)

Calculate the cost of goods sold under the FIFO method.

(iii) Calculate the gross profit under the FIFO method. (iv) Calculate the gross profit ratio under the FIFO method. (4 marks) (c)

For the period from 1 June 2017 to 30 September 2017:

(i)

Calculate the ending inventory under the Weighted Average Cost (WAC) method as at September 2017.

(ii)

Calculate the cost of goods sold under the WAC method.

(iii) Calculate the gross profit under the WAC method.

(iv) Calculate the gross profit ratio under the WAC method. (4 marks)

(Total for Question: 13 marks)

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ACCTG 102

Question 2: Laura is the owner of Floral Limited, a boutique florist shop. She was given advice by her accountant friend Ken regarding good internal controls for cash. He suggested one way that she can ensure that her cash is accurate and up to date is to prepare a bank reconciliation at the end of each month. Laura would like you to help her. She asks you to prepare a bank reconciliation for November 2017 using the following information.

General Ledger - Floral Limited

Date

Explanation

Bank Ref.

Debit ($)

Credit ($)

Balance Debit (Dr) / Credit (Cr) ($)

2017 November 1

Balance

5,314 Dr

1

Deposit

3

Cheque #800

1,250

5,564 Dr

3

Cheque #801

190

5,374 Dr

8

Cheque #802

112

5,262 Dr

9

Deposit

13

Cheque #803

20

Deposit

28

Cheque #804

28

Deposit

1,500

6,814 Dr

7,362 Dr

2,100 825

6,847 Dr

310 594 220

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6,537 Dr 6,253 Dr 6,473 Dr

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ACCTG 102

Question 2 continued: Bank of Kiwi Bank Statement - Floral Limited 30 November 2017

Date 2017

Explanation

Oct 31

Balance

Nov 1 6

Deposit

Cheques and Withdrawls ($)

Deposits ($)

Balance Debit (Dr) / Credit (Cr) ($) 6,512 Cr

1,500

8,012 Cr

Cheque #800

1,250

6,762 Cr

6

Cheque #801

190

6,572 Cr

8

Cheque #802

112

6,460 Cr

9

Deposit

10

NSF Cheque

10

2,100

8,560 Cr 8,360 Cr

NSF Fee

200 70

14

Cheque #803

852

20

Deposit

7,438 Cr 7,688 Cr

23 28

EFT – Energise Cheque #799

30

Bank charges

8,290 Cr 250

170

7,518 Cr

722 26

6,796 Cr 6,770 Cr

Additional information: 1.

On October 31, there were two outstanding cheques: #795 for $476 and #799 for $722.

2.

Bank of Kiwi made a posting error to the bank statement: check #803 was issued for $825, not $852.

3.

The deposit made on November 20th was for $250 that Laura received for teaching a floral arrangement class. Laura made an error in recording this transaction as a deposit for $310 in the General Ledger.

4.

The electronic funds transfer (EFT) was for Laura’s utilities expense.

5.

The NSF cheque fund reversal in November 2017 related to David Wilson. Laura received the cheque for $200 and deposited it in October 2017 for a floral bouquet that was sold to David. Laura contacted David, and he assured her that she will receive a replacement cheque in the mail in December 2017 for the outstanding amount of the invoice and the NSF bank charge. Page 6 of 13

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ACCTG 102

Question 2 continued: Required: (a)

Prepare the general journal entries necessary to update the “BANK” account in the general ledger for November 2017. (4 marks)

(b)

Prepare the Bank Reconciliation as at 30 November 2017 for Floral Limited. (10 marks)

(c)

If a balance sheet is prepared for Floral Limited at 30 November 2017, what balance will be reported as cash in the current assets section? (2 marks) (Total for Question: 16 marks)

Question 3: Lancer Limited's ledger for the year ended 31 March 2017 shows Accounts Receivable of $150,000 Debit. Required: (a)

Assume ‘Allowance for Doubtful Accounts’ has a credit balance of $3,000 in the trial balance and bad debts are expected to be 4% of accounts receivable. Journalise the adjusting entry at the end of the period. (3 marks)

(b)

Assume ‘Allowance for Doubtful Accounts’ has a debit balance of $3,000 in the trial balance and bad debts are expected to be 4% of accounts receivable. Journalise the adjusting entry at the end of the period. (3 marks)

(c)

Discuss the differences and implications between the ‘allowance method’ and the ‘direct write-off method’ of accounting for bad debts. (3 marks)

(Total for Question: 9 marks)

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ACCTG 102

Question 4: Techtronic Limited is a large electronics retailer. The General Manager Julie has asked you some questions regarding the accounting treatment for the assets of the company for the year ended 31 March 2017. Relevant information follows. Required: (a)

RETAIL STORE PROPERTY: Techtronic Limited owns its own retail store property. The revaluation model has been adopted and the retail store property has been revalued to $700,000 from its original book value of $600,000 as at 31 March 2017. This is the first year the revaluation has taken place. (i)

What is the required journal entry to record the retail store property revaluation? (2 marks)

(ii)

(b)

How would the revaluation affect the Statement of Comprehensive Income for the year ended 31 March 2017? (2 marks)

COMPUTER EQUIPMENT: Techtronic Limited uses the cost model for its computer equipment. The computer equipment was initially purchased on 1 October 2015 for $260,000, and required installation costs of $28,000 at that time. The computer equipment is depreciated on a straight line basis, with an estimated useful life of 3 years, and $36,000 residual value. On 1 April 2017, a major upgrade to the computer equipment costing $40,000 was completed and extended its estimated useful life to 2 years from the date of the upgrade. The original estimated residual value of $36,000 has been reassessed to $0. (i)

What is the required journal entry to record the depreciation expense for the computer equipment for the year ended 31 March 2017? (3 marks)

(ii)

Assuming there has been no other transactions affecting the computer equipment, what is the required journal entry to record the depreciation expense for the computer equipment for the year ended 31 March 2018 after taking into account the upgrade? (4 marks)

(iii) Ignoring Q4(b)(i) & (b)(ii) above. Now assume if the declining balance method has been used at a rate of 50% since the purchase of the computer equipment. What is the required journal entry to record the depreciation expense for the computer equipment for the year ended 31 March 2017? (3 marks)

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ACCTG 102

Question 4 continued: (c)

TRADEMARK: Techtronic had on its books a trademark for a foreign electronic brand with a carrying value of $20,000 as at 31 March 2017, which was initially acquired on 1 April 2015 at a cost of $50,000. On 31 March 2017, the trademark was disposed of with proceeds of $25,000 received. (i)

Show the required journal entry to record the asset disposal in relation to the trademark. (3 marks)

(ii)

What would the journal entry in Q4(c)(i) be if the sales proceed had been $15,000 instead of $25,000? (3 marks) (Total for Question: 20 marks)

Question 5: Quality Limited offers a 12-month warranty for the sale of used motorbikes. On 1 April 2016, the beginning of the financial year, there was a credit balance of $140,000 in its Warranty Provision account. During the year ended 31 March 2017, Quality Limited incurred $130,000 in warranty costs, of which $60,000 was for parts and $70,000 for labour. (Assume that the labour costs originally had been debited to Wages Expense during the regular payroll run). At 31 March 2017, Quality Limited estimated its liability for unexpired warranty contracts as $150,000.

Required: (a)

Prepare the necessary journal entries to record the warranty claims, assuming an annual accounting period. (3 marks)

(b)

Prepare the necessary period end journal entries to record the update required to the warranty provision, assuming an annual accounting period. (3 marks)

(Total for Question: 6 marks)

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ACCTG 102

Question 6: On 1 January 2017, Fable Limited issued 9%, 10-year bonds with a face amount of $1,500,000 for $1,440,000. Interest is payable annually on the 1st of January. The bonds were issued for an effective interest rate of 10%. Required: (a)

Prepare the entries to record the issuance of the bonds on 1 January 2017, and the first annual interest accrual and amortisation on 31 December 2017 (assuming that the company uses effective-interest amortisation). (4 marks)

(b)

Discuss the three key advantages of issuing bonds over issuing common shares for a company looking to raise capital. (3 marks)

(Total for Question: 7 marks)

Question 7: (a)

Equity Limited has 400,000 ($20 per share) common shares issued. It declares a 20% share dividend on 1st of April at a value of $24 per share, and issues the dividend on 30th of April. On 1st of June, it declares a cash dividend of $1.00 per share. You are required to journalise the entries in relation to these dividend transactions. (6 marks)

(b)

Companies frequently issue both preference shares and ordinary shares. What are the major differences in the rights of shareholders between these two classes of shares? (3 marks)

(Total for Question: 9 marks)

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ACCTG 102 SECTION B MULTIPLE CHOICE QUESTIONS Total: 20 marks

Circle your preferred choice on the coloured answer sheet provided on Page 13. Each question has only one correct answer and 2 marks will be awarded for each correct answer. Incorrect answers will receive no marks.

8. If the retained earnings account increases from the beginning of the year to the end of the year, then: (a) (b) (c) (d)

Net income is less than dividends. Net income is greater than dividends. Net loss is less than dividends. The company must have sold shares.

9. If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates: (a) (b) (c) (d)

No errors have been made. No errors can be discovered. That all accounts reflect correct balances. The mathematical equality of the accounting equation.

10. Kara Limited purchased supplies costing $7,500 on January 1, 2017 and recorded the transaction by debiting an expense. At the end of the year $3,000 of the supplies are still on hand. If Kara Limited does not make the appropriate adjusting entry, what is the impact on its balance sheet at December 31, 2017? (a) (b) (c) (d)

Assets understated by $3,000. Assets understated by $4,500. Equity understated by $4,500. Equity overstated by $3,000.

11. If ‘income summary’ has a credit balance after revenues and expenses have been closed into it, the closing entry for ‘income summary’ will include a: (a) (b) (c) (d)

Debit to Retained Earnings. Debit to Dividends. Credit to Retained Earnings. Credit to Dividends.

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ACCTG 102

12. Under the perpetual inventory system, cash freight costs incurred by the buyer for the transporting of goods are recorded in: (a) (b) (c) (d)

Freight Expense. Freight Payable. Inventory. Freight-Out.

13. In a period of rising prices, which cost flow assumption method generally provides the greatest amount of net income? (a) (b) (c) (d)

Weighted Average Cost (WAC). First In First Out (FIFO). Specific Identification. Historical Cost.

14. Which of the following is not one of the main factors that contribute to fraudulent activity? (a) (b) (c) (d)

Opportunity. Incompatible duties. Financial pressure. Rationalization.

15. Physical controls to safeguard assets do not include: (a) (b) (c) (d)

Cashier department supervisors. Vaults. Security alarms. Security guards.

16. If the market interest rate is 10%, a $10,000, 12%, 10-year bond, that pays interest annually would sell at an amount: (a) (b) (c) (d)

Less than face value. Equal to face value. Greater than face value. Equal to par value.

17. Treasury shares are: (a) (b) (c) (d)

Cash shares issued by the government's Treasury Department. Shares purchased by a company and held as an investment in its treasury. Company shares issued by the treasurer of a company. A company's own shares which have been reacquired but not retired. ANSWER SHEET FOLLOWS

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ANSWER SHEET VERSION 1

ACCTG 102

First Name:_________________________________ Last Name:_________________________________ AUID:_________________________________

SECTION B MULTIPLE CHOICE QUESTIONS Circle your preferred choice. If you make a mistake, mark a cross through your wrong choice and circle your next alternative.

8.

a1

b2

c3

d4

13.

a1

b2

c3

d4

9.

a1

b2

c3

d4

14.

a1

b2

c3

d4

10.

a1

b2

c3

d4

15.

a1

b2

c3

d4

11.

a1

b2

c3

d4

16.

a1

b2

c3

d4

12.

a1

b2

c3

d4

17.

a1

b2

c3

d4

REMOVE THIS ANSWER SHEET AND TIE TO YOUR EXAMINATION ANSWER SCRIPT BOOKLET

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