Final Exam 2020, answers PDF

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The official solutions to the ACCT1501 2020T1 Final Exam. ...

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ACCT1501 Practice Exam Questions & Solutions

QUESTION: Prepare financial statements (14 Marks) The following pre-adjusted trial balance has been prepared for Sydney Company as at 30 June 2016 (for the 12 months beginning on 1 July 2015): DR

CR

$

$

Bank Overdraft Accounts Receivable

10,000 200,000

Allowance for Doubtful Debts Inventory Prepaid Rent Property, Plant and Equipment

1,000 100,000 10,000 450,000

Accumulated Depreciation

200,000

Accounts Payable

60,000

Bank loan

50,000

Contributed Capital

310,000

Retained Profit at 1 July 2015

34,000

Sales revenue Cost of Goods Sold

450,000 265,000

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, and it is assumed that it will have no salvage value.  The balance in Prepaid Rent relates to the 12-month period from 1 January 2016 to 31 December 2016.  An ageing analysis shows that $4,000 of Accounts Receivable is estimated to be uncollectible.  On 30 June 2016, the directors declared a dividend of $5,000, which the shareholders authorised. The dividend is to be paid on 15 September 2016  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 2016.  $5,000 of wages relating to June 2016 have not been paid and need to be accrued.

ACCT1501 Practice Exam Questions & Solutions

Part A (6 Marks) Prepare journal entries for the necessary end of period adjustments. Account name

Debit $

Depreciation Expense Accumulated Depreciation (0.5 mark for each entry)

45 000

Rent Expense Prepaid Rent (0.5 mark for each entry) Half of the prepayment in the trial balance has been used.

5 000

Bad Debts Expense Allowance for doubtful debts (0.5 mark for each entry) See opening 1,00 balance of allowance for DD in trial balance.

3 000

Retained Profits Dividend Payable (0.5 mark for each entry)

5 000

Sales revenue Unearned revenue (0.5 mark for each entry)

10,000

Wages Expense Wages Payable (0.5 mark for each entry)

5,000

Credit $

45 000

5 000

3 000

5 000

10,000

5,000

ACCT1501 Practice Exam Questions & Solutions

Part B (5 Marks) Prepare an Income Statement for the year ended 30 June 2016. (0.5) Sydney Company Income Statement for year ended 30 June 2016

$ 440 000 265 000 175 000

Sales revenue (0.5 mark) Less: Cost of Goods Sold (0.5 mark if COGS is in correct place) Gross Profit (0.5 mark) Less other expenses Interest expense Depreciation expense Rent expense Bad debts expense Wages expense

(0.5 mark) (0.5 mark) (0.5 mark) (0.5 mark) (0.5 mark)

Net Profit

(0.5 mark)

5 000 45 000 10 000 3 000 85 000

27 000

Part C (3 Marks) In the Balance Sheet as at 30 June 2016, what would be the closing balance of retained profits? Show all workings.

Opening Balance Plus Net Profit for Period Less Dividends declared Closing Balance

(1 mark for each item & correct figure)

148 000

$ 34 000 (0.5 mark) 27 000 (1 mark) 5 000 (1 mark) 56 000 (0.5 mark)

ACCT1501 Practice Exam Questions & Solutions

QUESTION: ACCOUNTS RECEIVABLE (8 Marks) A company records an allowance for doubtful debts. On 1 July 2015, the allowance has a credit balance of $15 000.

i) Sales for the year to 30 June 2016 are $350 000. Prepare the journal entry to recognise a bad debts expense based on 2% of sales. Account name

Debit

Bad Debts Expense Allowance for Doubtful Debts

7000

Credit

7000

ii) On 1 May 2016 a customer owing $1000 goes bankrupt. Prepare the journal entry to write-off the bad debt. Account name

Debit

Allowance for Doubtful Debts Accounts Receivable

1000

Credit

1000

iii) Assume the journals for parts i) and ii) have been processed. An ageing analysis of outstanding debts finds that the balance of the allowance at 30 June 2016 should be $25 000. Prepare the adjusting journal entry. Account name

Debit

Bad Debts Expense Allowance for Doubtful Debts

4000

Credit

4000

(25 000 – [15 000 + 7000 – 1000] = 4000)

iv) Prepare the closing journal entry for bad debts expense Account name

Debit

Profit and Loss Summary Bad Debts Expense

11 000

(2 marks each section, no part marks)

Credit

11 000

ACCT1501 Practice Exam Questions & Solutions

QUESTION: Management Accounting (10 marks) Part A (4 marks) RJ Ltd manufactures and sells office chairs. RJ’s accounting records provide the following information: $ Salary – marketing staff Commissions – salespersons Administrative expenses Finished goods inventory (1 July 2014) Finished goods inventory (30 June 2015) Revenue Direct materials inventory (1 July 2014) Direct materials inventory (30 June 2015) Direct manufacturing labour Work in progress inventory (1 July 2014) Work in progress inventory (30 June 2015) Direct materials purchased Rent - factory building Factory electrical expenses Indirect materials used

45,000 24,000 55,000 71,000 48,000 876,000 91,000 43,000 89,000 66,000 38,000 105,000 31,000 26,000 17,000

Based on the information above, identify all items (and the $ value) that should be included in the calculation of period cost. What are the total period costs? (4 marks)

Total period costs: Salary – marketing staff Commissions - salespersons Administrative expenses Total

45,000 24,000 55,000

(1mark) (1mark) (1mark)

$124,000

(1mark)

ACCT1501 Practice Exam Questions & Solutions

Part B (6 marks) E-Scooters Ltd manufactures and sells a single product, electric scooters. The operating results for E-Scooters Ltd in 2015 are as follows:

Sales (2000 @ $800) Less: Variable costs Contribution margin Less: Fixed costs Profit

$ 1,600,000 700,000 900,000 450,000 450,000

In order to improve the range the electronic scooter can travel between charges, EScooters Ltd has decided to change the type of motor used in the scooters beginning in 2016. The new motor was developed using the latest technology and it allows the scooter to travel longer distance. Given that E-Scooters will purchase the motor from a supplier in bulk, it managed to negotiate the best price. This will decrease the variable cost per scooter by $50. Given the latest technology, E-Scooters believes that the new scooter can be sold at a higher price. Hence, the price of the new scooters will be increased to $950 each. In order to raise awareness of the new electric scooter, E-Scooter Ltd will spend $80,000 in 2016 in an aggressive promotion campaign. The company expects that the campaign will cause demand to increase to 2200 units, despite the increased in price. Required: (a) What is the contribution margin per unit for 2016? (2 marks) (b) How many scooters would E-Scooters have to sell in order to earn as much profit in 2016 as it did in 2015? (2 marks) (c) Suppose that E-Scooters would like to earn a before-tax profit of $1,000,000 in 2016. How many scooters E-Scooters have to sell to earn the profit? (2 marks)

Show all working. (a) What is the contribution margin per unit for 2016? (2 marks) Variable cost per unit for 2015 = $700,000/2000 = $350 per unit

Variable cost per unit for 2016 = $350 - $50 = $300 Price per unit for 2016 = $950 Therefore, CM margin per unit for 2016 = $950 - $ 300 = $650 (2 marks)

ACCT1501 Practice Exam Questions & Solutions

(b) How many scooters would E-Scooters have to sell in order to earn as much profit in 2016 as it did in 2015? (2 marks) Sales units = (Total Fixed Costs + Target Profit) CM per unit =

(530,000 + 450,000) 650 = 980,000 650 = 1507.69 = 1508 scooters (2 marks for correct answer. Deduct ½ mark if student doesn’t round up)

(c) Suppose that E-Scooters would like to earn a before-tax profit of $1,000,000 in 2016. How many scooters E-Scooters have to sell to earn the profit? (2 marks) Sales units = (Total Fixed Costs + Target Profit) CM Per Unit = (530,000 + 1,000,000) 650 = 1,530,000 650 = 2353.85 = 2354 scooters (2 marks for correct answer. Deduct ½ mark if student doesn’t round up)

ACCT1501 Practice Exam Questions & Solutions

Sample Multiple Choice Questions

1.

Which of the following may cause the sum of the debit column of a trial balance to differ from the sum of the credit column? A. Posting the same wrong amount to both sides of the right accounts. B. Posting an amount to the wrong side of the right account. C. Posting an amount to the right side of the wrong account. D. Reversing the postings, that is, debiting the account that should have been credited and crediting the account that should have been debited.

2.

Which of the following statements about closing the accounts is NOT true? A. Sales revenue account is debited. B. Depreciation account is credited. C. Share capital is debited. D. A net loss is debited to the retained profits account.

3.

The balance in the Prepaid rent account before adjustment at the end of the year is $15 000, which represents three months’ rent paid on May 1. The adjusting entry required on June 30 is: $10 000 Cr Prepaid rent $10 000 A. Dr Rent expense B. Dr Rent expense $5000 Cr Prepaid rent $5000 C. Dr Prepaid rent $10 000 Cr Rent expense $10 000 D. Dr Prepaid rent $5000 Cr Rent expense $5000

4.

On 1 May 2016, A Ltd pays $9600 for a one-year fire insurance policy that expires on 30 April 2017. Which of the following will appear on A Ltd’s balance sheet at 30 June 2016? A. Prepaid insurance $1600 B. Prepaid insurance $8000 C. Prepaid insurance $8800 D. Prepaid insurance $9600

5.

On 30 June, the last day of its financial year, Fast Deliveries Ltd paid $1200 cash for a one-year insurance policy. What is the appropriate journal entry to record the payment, assuming the insurance policy becomes effective on 1 July? A. Dr Insurance expense $1200 Cr Prepaid insurance $1200 B. Dr Prepaid insurance $1200 Cr Cash $1200 C. Dr Cash $1200 Cr Prepaid insurance $1200 D. Dr Prepaid insurance $ 120 Cr Insurance expense $ 120

6.

Which of the following statements about comparability is true? A. A company has to use the same accounting methods in all parts of a company. B. The same depreciation method should be employed for all assets of a company. C. The same accounting methods must be used as those used by other companies in the industry. D. None of the answers provided.

7.

Which of the following is NOT an essential characteristic of an asset? A. It must be legally owned by the entity. B. The entity must have control over the asset. C. The transaction giving the entity control over the asset must have occurred. D. It is probable that future economic benefits will flow to the entity.

ACCT1501 Practice Exam Questions & Solutions 8.

Which of the following is NOT a feature of the internal control of cash payments? A. Two staff members s hould sign the cheques. B. The signatories should be involved in invoice approval. C. Payments should only be made for properly authorised documentation. D. Cheques should be endorsed with a stamp.

9.

Included in the bank statement was a debit for an NSF (not sufficient funds) cheque received from a customer. What entry is required in the company’s accounts? A. Dr Other revenue Cr Cash B. Dr Cash Cr Other revenue C. Dr Cash Cr Accounts receivable D. Dr Accounts receivable Cr Cash

10.

For which of the following adjustments would NO journal entry be required following completion of the bank reconciliation? A. Error by the bank B. Error by the company C. Note collected by the bank D. NSF cheque

11.

Which of the following statements about the Allowance for doubtful debts account is true? A. The Allowance for doubtful debts account represents cash available to meet losses incurred when customers are unable to pay their accounts B. The Allowance for doubtful debts account functions to adjust the net value of accounts receivable down to the lower of cost and current estimated collectable amount. C. The Allowance for doubtful debts account represents the total of accounts written off as uncollectable for the current period. D. None of the answers provided.

12.

Management uses the ageing approach method to calculate the allowance for doubtful debts. An analysis of the ageing of accounts receivable shows a substantial increase in the accounts receivable in the over-90-days category. Management does not adjust the allowance for doubtful debts at year-end. As a result: A. assets are overstated, and net income is overstated. B. assets are overstated, and net income is understated. C. assets are understated, and net income is overstated D. assets are understated, and net income is understated.

13.

During the year ended 30 June 2016, Rico Ltd had net sales of $750 000 and net purchases of $440 000. Cost of goods sold was $475 000. What was Rico Ltd’s gross profit for the year ended 30 June 2016? A. $240 000 B. $275 000 C. $310 000 D. $475 000

14.

Which of the following would NOT be included in the cost of a new building? A. Demolition of old building B. Excavation costs C. Installation costs D. Building insurance

15

Jacques Ltd purchased a computer for $4500 on 1 July 2015. It had an estimated useful life of three years. It was depreciated using the straight-line method. The financial year ends on 30 June. What was the accumulated depreciation at 30 June 2017? A. $0 B. $1500 C. $3000 D. $4500

ACCT1501 Practice Exam Questions & Solutions 16. The sum of direct labour and direct materials is also referred to as: a. Total indirect costs b. Conversion costs c. Prime costs d. Repair costs 17. Service Company Limited undertakes repair work for faulty computers. In March 2017, the following costs were incurred: -

a. b. c. d.

Payments to repair technicians Overheads Purchase of materials Marketing expenditure

$25,000 $17,000 $12,000 $3,000

The conversion cost for March 2017 totalled? $37,000 $42,000 $45,000 $54,000

18. A hotel has average revenue of $200 per room occupancy. Variable costs are $50 per room occupancy and fixed costs are $3,300,000 per year. The number of rooms that must be let for the hotel to breakeven is: a. 13,200 b. 16,500 c. 22,000 d. 66,000 19. A hotel has average revenue of $200 per room occupancy. Variable costs are $40 per room occupancy and fixed costs are $3,300,000 per year. In order to earn a profit of $700,000, total sales revenue must equal: a. 4,000,000 b. 4,125,000 c. 4,625,000 d. 5,000,000 20. A hotel has average revenue of $200 per room occupancy. Variable costs are $40 per room occupancy and fixed costs are $3,300,000 per year. In order to breakeven, total sales revenue must equal: a. 4,000,000 b. 4,125,000 c. 4,625,000 d. 5,000,000

ACCT1501 Practice Exam Questions & Solutions

QUESTION: Management Accounting (13.5 marks) Part A (2 marks)

For each of the items 1-4 in the table below, indicate whether the item is a product cost or a period cost Item

Cost Classification

1. A food retailer purchases milk for resale

Product

2. Depreciation of head office computers

Period

3. Salaries of production line workers for a

Product

manufacturer 4. Advertising costs to promote a manufacturer’s

Period

products

½ mark each entry Part B (9.5 marks) Bandcamp Ltd manufactures guitars. In the month of January 2017, Bandcamp Ltd recorded:  

o direct labour cost of $200 000 o raw materials purchased of $400 000 o total overhead cost of $500 000. The following information was supplied by Bandcamp Ltd’s accountant about the opening and closing inventory: 31 January 1 January (ending)

(beginning)

$80 000

$95 000

Work in progress inventory

$110 000

$60 000

Finished goods inventory

$255 000

$75 000

Raw materials inventory

ACCT1501 Practice Exam Questions & Solutions

1. Prepare a cost of goods manufactured statement for January 2017. Bandcamp Ltd Statement of Cost of Goods Manufactured For the Month Ended 31 January 2017 Direct materials: Beginning raw materials inventory Add: Purchases Materials available Less: Ending raw materials inventory Direct materials used Direct labour Manufacturing overhead Manufacturing costs added Add: Beginning work in process Total manufacturing costs Less: Ending work in process Cost of goods manufactured

$ 95 000 400 000 495 000 80 000

$

415 000 200 000 500 000 1 115 000 60 000 1 175 000 110 000 1 065 000 ½ mark each entry ½ mark for heading

2. Prepare a cost of goods sold statement for January 2017. Bandcamp Ltd Cost of Goods Sold Statement For the Month Ended 31 January 2017 Beginning finished goods inventory Add: Cost of goods manufactured Goods available for sale Less: Ending finished goods inventory Cost of goods sold

½ mark each entry ½ mark for heading

$ 75 000 1 065 000 1 140 000 255 000 885 000

ACCT1501 Practice Exam Questions & Solutions

Part C (2 marks) Tree & Woods Corp., an international furniture company, manufactures and sells furniture of unique natural material. In 2017, the company sold all 25,000 chairs that it produced at $200 each. Total costs amounted to $3,300,000 comprised of $1,300,000 variable costs and $2,000,000 fixed costs. In 2018, the company purchases a new saw mill for $110,000. The useful life is estimated to be 5 years with a salvage value of $10,000. Each year, the same amount of depreciation expense is recorded. The usage of the new saw mill allows Tree & Woods to reduce variable costs for producing one chair by $7. All other costs remain the same as in 2017. What was Tree & Woods Corp.’s break-even point in number of units in 2017?

Production and sale of 25,000 units => Unit Variable Cost = $52 (1,300,000 / 25,000) BEP = FC/(Price – UVC) = 2,000,000/(200-52) = 13,513.51 => 13,514 units UVC 1 mark, correct result 1 mark

ACCT1501 Practice Exam Questions & Solutions

QUESTION Management Accounting (10 Marks) Using the following information for 2016, prepare a cost of goods manufactured statement (10 Marks) $ 27,000 6,000 8,000 22,000 52,000 81,000 9,000 60,000 17,000 99,000 112,000 69,000 76,000 84,000 12,000 8,000

Indirect manufacturing labour Factory repairs and maintenance costs Capital gains tax factory building sale Indirect materials used Marketing and distribution costs Finished goods inventory, 1 January 2016 Plant electrical expenses Work in p...