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SECTION A – Multiple Choice Questions (20 Marks) Answer ALL questions. Each question carries 1 mark.

1.

Assume you are examining a financial statement headed ‘As at the 31 December 2009’. The heading indicates the statement is the: a. Balance sheet b. Income statement c. Statement of changes in equity d. Cash flow statement

2.

The expression of the accounting equation that is correct is: a. Assets + Liabilities = Equity b. Liabilities = Assets + Equity c. Assets = Liabilities + Equity d. Assets = Equity – Liabilities

3.

These balances were taken from the accounts of P Enterprises 31 Dec 2008 31 Dec 2009 Assets $220 000 $460 000 Liabilities 100 000 130 000 Assuming there were no drawings or contributions of capital, the profit for the year 2009 must have been: a. $240 000 b. $120 000 c. $330 000 d. $210 000

4.

The assets of Quinn's business increased by $40 000 and the liabilities increased by $5000 during the current year. If the profit for this period was $25 000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made). a. Drawings $10 000 b. Contribution $10 000 c. Contribution $5000 d. Drawings $5000

5.

An increase is recorded on the debit (left-hand) side of which ledger accounts? a. Asset b. Income c. Expense d. “a” and “c”

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6.

If a transaction causes an equity account to decrease, which of these related effects may also occur? a. A decrease of an equal amount in a liability account b. An increase of an equal amount in an asset account c. A decrease of an equal amount in an asset account d. A decrease of an equal amount in another equity account

7.

During 2009 the Style Hairdressing Salon paid out $41 000 in wages from its bank account. At year-end 2009 wages owing but unpaid were $2 400. The salon uses accrual accounting. How much would be reported as wages expense for 2009? a. $38 600 b. $41 000 c. $43 400 d. $42 600

8.

On 1 July 2009 the Pepper Diner Co. rented out part of its property and collected $9,000 in advance for a nine-month period. The receipt was credited to a liability account. At 31 December 2009, Pepper Diner Co's year-end, which of the following adjusting journal entries should be made? a. Dr. Unearned Rent Income, $6000; Cr. Rent Income, $6000 b. Dr. Rent Income, $3000; Cr Unearned Rent Income, $3000 c. Dr. Cash, $6000; Cr. Rent Income, $6000 d. Dr. Rent Receivable, $6000; Cr. Rent Income, $6000

9.

Which of the following are advantages of using a worksheet to assist in preparing the financial statements? a. All the information is assembled in one place b. It aids in the preparation of interim financial statements for internal use c. Reports can be prepared without making closing entries in the ledger d. All of the above are advantages

10. Closing which of these accounts results in a credit to the Profit and Loss Summary

account? a. b. c. d.

Sales Depreciation Rent Expense Bad debts

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11. J. Brown (sole trader) had a profit of $110 000 for the year. The closing general journal

entry for the profit is: a. b. c. d.

Cash Capital Profit and Loss Summary Capital Capital Cash Capital Profit and Loss Summary

Debit $ 110 000

Credit $ 110 000

110 000 110 000 110 000 110 000 110 000 110 000

12. The major purpose of a post-closing trial balance is to:

a. b. c. d.

Prepare the financial statements Determine if any adjusting entries have been omitted Test for equality of debits and credits in the general ledger to ensure the opening position is correct for the next period Make sure that all post-closing account balances are equal to the pre-closing account balances

13. The entry to record the return of goods to a supplier under the perpetual inventory

system is: a. Debit Accounts Payable, credit Inventory b. Debit Accounts Payable, credit Purchases c. Debit Inventory, credit Accounts Payable d. Debit Inventory, credit Purchases Returns

14. Which of the following is not true of the periodic inventory system?

a. b. c. d.

Cost of sales can be calculated only after a physical stocktake It uses a Purchases account It is the system employed by big supermarkets It is the simplest system

15. Which of the statements relating to a bank statement is true?

a. b.

The customer is viewed as a debtor It constitutes a source document for the firm for direct debits and credits such as bank charges

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c. d.

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A deposit is listed in the debit column A positive amount in the bank account will be shown as a debit balance

16. When reconciling the ledger with the bank statement (assuming a positive bank balance)

a returned (dishonoured cheque from a customer) should be: a. Added to the bank statement balance in the reconciliation b. Subtracted from the general ledger bank balance c. Subtracted from the bank statement balance d. Added to the general ledger bank balance

17. The statement concerning the Allowance for Doubtful Debts account that is not true is:

a. b. c. d.

Allowance for Doubtful Debts is used to adjust receivables for estimated bad debts because individual debtors balances cannot be removed from the ledger unless there is indisputable evidence they are bad Allowance for Doubtful Debts is a contra-asset account designed to reduce receivables to estimated realisable value Allowance for Doubtful Debts represents cash set aside to cover losses incurred as a consequence of customers being declared bankrupt None of the above.

18. Dupont Ltd uses a periodic inventory system with the specific identification method of

cost assignment. Particular Beginning Inventory Purchase Purchase

Date

Units

July 1 July 10 July 20

1000 2000 1000

Unit Cost in $ 10 11 13

On 25 July, 500 units from beginning inventory and 1500 units from the 10 July purchase were sold. What was the value of ending inventory at 31 July? a. $23 500 b. $25 500 c. $26 000 d. $34 500

19. Fricker’s financial records reveal this information at 31 December 2009.

Net Sales for 2009 Cost of Sales for 2009 Ending Inventory

$90 000 $ 60 000 $ 12 500

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Beginning Inventory $ 17 500 The number of days taken to turn over average inventory for 2009 are: a. 91 days b. 71 days c. 76 days d. 61 days

20. Which type of business has the fastest inventory turnover?

a. b. c. d.

Used car lot Jewellery store Camera store Supermarket

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SECTION B (80 Marks) Answer ALL questions. Question 1 Lama Enterprise is a small retail business. Its financial year end is 30 September each year. Below is an extract of the Lama Enterprise’s trial balance as at 30 September 2009.

No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Title of Accounts Accounts payable Accounts receivable Accumulated depreciation, building, 1.10.2008 Accumulated depreciation, office equipment, 1.10.2008 Advertising expense Allowance for doubtful debts Bad debts recovered Bank loan, due 2.2.2020 Capital Cash at bank Discount allowed Discount received Drawings Interest expense Inventory at 1.10.2008 Land and building Maintenance and repairs expense Marketing services expense Office equipment, at cost Prepaid insurance Purchases Salaries and wages expenses Sales return Sales revenue Staff training expense Sundry operating expense

DR $’000

CR $’000 388

300 45 26 7 17 6 110 355 44 15 14 24 9 88 520 31 12 100 29 965 320 33 1661 13 10

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Superannuation contribution expense Telecommunication & Postage expense Transport inwards expense Transport outwards expense TOTAL

32 34 15 21 2,622

2,622

(IGNORE GOODS & SERVICES TAX) You are provided the other data: (i)

The employees of Lama Enterprise did an inventory count on the last day of the financial year. It was agreed at the value of $99,000

(ii)

The prepaid insurance in the above is valid from 01 October 2008 to 30 September 2009.

(iii)

The depreciation charges for building $2,000 and for office equipment $20,000 for the financial year had not yet been adjusted.

(iv)

The Allowance for Doubtful Debts is required to increase to $19,000.

(v)

Lama Enterprise sent its computer for a minor repair on 28 September 2009. The cost of the repair was $1,000. It has not received any invoice. No entry has been made regarding this transaction.

REQUIRED: (a)

Prepare a detailed Income Statement for the year ended 30 September 2009; and (10 marks)

(b)

A Statement of Owner’s Equity for the year and a detailed Balance Sheet as at 30 September 2009. (10 marks)

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Question 2 Below is the Income Statement of BJ Enterprise for the financial year ended 30 September 2009. BJ Enterprise Income Statement for the year ended 30 September 2009. Sales Less: Cost of goods sold Gross Profit Profit on sale of office equipment Interest revenue Less: Expenses Interest expense Salary expense Depreciation expense Insurance expense Miscellaneous operating expense

$1,666,000 1,000,000 666,000 1,000 2,000 669,000 8,000 250,000 40,000 16,000 9,000 323,000 346,000

Net income

On 01 October 2008 BJ Enterprise had a cash balance of $30,000. During the financial year, the following changes were recorded: Accounts Accounts receivable Inventory Prepaid insurance Accounts payable Salaries payable

As at 30.9.2008 $200,000 140,000 5,000 250,000 4,000

As at 30.9.2009 $290,000 155,000 9,000 278,000 0

Change $90,000 increase 15,000 increase 4,000 increase 28,000 increase 4,000 decrease

The interest and miscellaneous operating expenses and interest revenue were paid or received as they arose. Additional data were given below:

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BJ Enterprise bought a brand new motor vehicle for $27,000 cash. An old motor vehicle was sold for $3,000 cash, which it had a carrying value of $3,000. A fully depreciated computer was sold for $1,000 cash. BJ Enterprise issued a batch of notes payable for $100,000 on 17 June 2009. On the 28 August 2009, it redeemed another batch of notes payable for $150,000. The owner withdrew cash from the business for personal use every quarter. It was noted that in the four quarters he withdrew $4 000, $5 000, $3 000 and $6 000 respectively.

REQUIRED: (a)

Prepare a detailed Cash Flow Statement of BJ Enterprise for the year ended 30 September 2009. (16 marks)

(b)

The owner of BJ Enterprise could not understand the cash flow statement that you have prepared. Explain the cash flow statement to the owner. (4 marks)

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Question 3 (A) Bi Be is an engineering consultancy firm. It updates its accounts daily. 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 For Example: Received $500 cash for advice given to a customer, but recorded the transaction as $50. (i) Now Bi Be received $5,555 cash for the work done in the previous month. It was recorded DR Cash, CR Consultancy Revenue. (ii) Bi Be paid $444 for the utility used in the month. It was recorded twice.

(iii) The owner of Bi Be withdrew $800 cash from the business for personal use. He said, “the business belongs to him, so there is no need to record.” (iv) Bi Be received $3,000 cash in advance for consultancy work to be done next month. It was recorded as DR Cash, CR Consultancy Revenue. (v) Now Bi Be paid $900 cash for the purchased of a facsimile machine made last month. It was wrongly recorded as DR Office Equipment CR Cash at Bank

Net Profit U

Total Total Assets Liabilities U

NE

Owner’s Equity U

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(10 marks)

(B) Evergreen Trading Ltd’s financial year end is 31 December each year. For depreciation of non-current assets, it uses the straight line method. On 1 January 2005, Evergreen Trading Ltd bought a machine for $20,000 cash which has an estimated useful life of 5 years and a zero residual value. Every year on 31 October, the machine underwent regular repairs and maintenance. On 31 October 2008, the repairs and maintenance cost the company $333. It was paid on the same day. On 1 January 2009, the company thoroughly overhauled the machine, after which the machine can last for 3 years. The cost of the overhaul was $5,000 cash. Evergreen Trading Ltd did not expect the machine to have any residual value. (Ignore Goods and Services Tax)

REQUIRED a) Prepare the journal entry for the 1 January 2005 transaction. b) Prepare the journal entry for the repairs and maintenance on 31 October 2008. c) Prepare the journal entry for the depreciation charge for the year ended 31 December 2008. d) Prepare the journal entries for the transactions on 1 January 2009. e) Prepare the journal entry for the depreciation charge for the year ended 31 December 2009. Show your workings clearly. (10 marks)

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Question 4 (A) John Yang formed a sole proprietorship business, namely, JY Enterprise. It bought a special car model, called, Hybrid Car, from a local manufacturer and sold them in a small remote town. The following is an extract of the transactions in September 2009. JY Enterprise adopted the Perpetual Inventory System. Date 2009 Sept. 01 Sept. 02 Sept. 09 Sept. 15

Sept. 15

Events John Yang started JY Enterprise by depositing $1,000,000 in a newly opened bank account. JY Enterprise bought 20 Hybrid Cars at $9,000 each, terms 5/5, n/30 JY Enterprise sold 10 Hybrid Cars at $10,000 each to Car-For-Hire Company, terms, 2/2, n/45 The car market has become very competitive. This was due to the country being deeply affected by the recession. JY Enterprise found that the market price of its Hybrid Cars is now selling for $9,000 each. John Yang drove one of the Hybrid Cars home, from the store, for his family’s use. The ownership title was transferred to his wife. On the same day, John Yang also took one of the cars from the store and gave it to JY Enterprise’s Manager to use for official business purpose.

REQUIRED: (a) Write up the journal entries for the above transactions, September 01 to September 15, 2009. (10 marks)

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(b) During the month of September 2009, JY Enterprise took one of the Hybrid Cars from the store and used it as a “test car” by potential customers. It was a customary practice by car buyers to test the car before making a decision whether or not to purchase. On September 30, 2009, JY Enterprise found that this “test car” has a sale value of $8,000. To promote the sale of this “test car”, JY Enterprise needs to advertise in the local media, which cost $300. Besides this “test car”, JY Enterprise has 7 brand new cars in the store. Calculate the Ending Inventory value (stock-in-trade value) for the purpose of preparing the Balance Sheet of JY Enterprise as at September 30, 2009. (2 marks)

(B) Match the items in Column 1 with the appropriate description in Column 2. Column 1 (i) Materiality (ii) Going concern (iii) Monetary assumption (iv) Period assumption (v) Entity assumption (vi) Assets (vii) Accrual basis (viii) Consistency Column 2 (a) The use of money as a measurement basis to record and report economic activity. (b) Business activity is separated from the owner’s personal activity. (c) An inappropriate assumption for an entity undergoing bankruptcy. (d) The extent to which information can be omitted, misstated or grouped with other information without misleading the users of that information. (e) The economic life of an entity can be divided into equal time intervals for reporting purposes. (f) The effects of transactions and events are recognized in the accounting records when they occur, and not when the cash is received or paid. (g) The notion that once a particular accounting policy or procedure is adopted, it should not

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be changed from period to period unless a different method provides more useful information. (h) Resources controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity.

(8 marks)

*** END OF EXAMINATION PAPER ***

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FORMULA SHEET

Net Profit Net Sales

 100%

Gross Profit  100% Net Sales Current Assets Current Liabilities Quick Asse ts Current Liabilities Total Liabilities Total Assets

Net Profit  Interest Expense Average Total Assets Net Profit Average Owner' s Equity

 100%

 100%

Cost of Goods Sold Average Inventory Number of Days in Business Year Inventory Turnover Net Credit Sales Average Accounts Receivable Number of Days in Business Year Accounts Receivable Turnover...