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APRIL 2002
ACCT101
FINANCIAL ACCOUNTING
INSTRUCTIONS TO STUDENTS
1. This paper consists of two parts, Part A and Part B, printed on a total of 10 pages (for a
total of 100 marks, plus 5 bonus marks). PLEASE CHECK BEFORE COMMENCING.
This is a FINAL paper.
2. The time allowed for this examination paper is 3 (three) hours.
3. Part A consists of 6 questions (70 marks, plus 5 bonus marks). You are to answer ALL
questions and show ALL relevant calculations when appropriate.
4. Part B consists of 15 Multiple Choice Questions (30 marks). You are to write in your
answer booklet the most appropriate answer. Each correct answer is worth 2 marks and
a penalty of marks will be applied to any incorrect answer.
Term 2 2001/2
Liabilities
Accounts payable (merchandise creditors)
Dividends payable
Salaries payable
Mortgage payable (due 2004)
Bonds payable
Common stock, $1 par value
Share premium
Retained earnings
2001 ($)
2000 ($)
163,400
192,400
287,500
8,500
100,000
550,000
(201,500)
275,700
(104,800)
37,400
$1,308,600
134,600
176,400
312,300
6,000
100,000
415,000
(176,000)
295,700
(84,600)
40,000
$1,219,400
131,400
12,000
10,500
50,000
19,000
210,000
875,700
$1,308,600
146,700
10,000
12,800
164,000
15,000
50,000
820,900
$1,219,400
An examination of the income statement and accounting records revealed the following
additional information applicable to 2001:
a. The net income for 2001 was $102,800.
b. Equipment with a cost of $20,000 and accumulated depreciation of $15,000 was sold
for $8,000 during the year.
c. Cash dividend declared $48,000.
d. 4,000 shares of common stock were issued at $41 per share to retire bonds payable
Required:
A. Prepare a COMPLETE statement of cash flows for the year ended
December 31, 2002 for Bon Voyage Luggage Company. Include cash
reconciliation and any necessary schedule. You can use either the indirect
method or the direct method.
B. Is it possible for a company to record a loss and yet have a positive cash
flow from operations and vice versa? Explain.
Page 2
(12
marks)
(3 marks)
Term 2 2001/2
FV factor
1.3382
PV factor
0.7473
FVA factor
5.6371
PVA factor
4.2124
Required:
A. Assuming the lease qualifies as an operating lease, prepare the necessary
journal entries for Griffindor Corp on 1 July 2001, 31 December 2001, and
30 June 2002.
B. Assuming the lease qualifies as a capital lease, prepare the necessary journal
entries for Griffindor Corp on 1 July 2001, 31 December 2001, and 30 June
2002. Ignore the depreciation of the leased asset.
C. Assuming that instead of leasing the asset, Griffindor Corp decides to
purchase the truck from Hufflepuff Company. In return, Griffindor Corp
would issue 10,000 shares of $1 par value to Hufflepuff Company. The
agreed value of the share at the date of the exchange was $6 each. Prepare
the journal entry for the transaction.
D. What are the conditions that will decide whether a lease is an operating
lease or a capital lease?
(3 marks)
(3 marks)
(1
marks)
(2
marks)
FV factor
1.3605
1.4641
1.3686
1.4775
PV factor
0.7350
0.6830
0.7307
0.6768
FVA factor
4.5061
4.6410
9.2142
9.5491
PVA factor
3.3121
3.1699
6.7327
6.4632
Page 3
(2 marks)
(6 marks)
(2 marks)
Term 2 2001/2
Page 4
(5 marks
per section)
Term 2 2001/2
Page 5
Term 2 2001/2
Required:
A. Propose the necessary adjusting entries as at 31 December 2001
B. Prepare a properly classified Income Statement
C. Prepare a properly classified Balance Sheet
(9 marks)
(3 marks)
(3 marks)
2.
3.
The company received $51,500 cash (inclusive of GST) for an urgent order of
merchandise from Hwang Gan Ltd, a new local customer, on 29 December to be
delivered by 31 December. The company had included this sale in computation of the
profit of $250,000 but due to unforeseen circumstances, the identified merchandise
costing $42,000 was delivered on 2 January 2002. The said merchandise was excluded
from the year-ends physical inventory count as it was marked Hold for shipping
instructions.
On 31 December 2001, TKL shipped merchandise costing $20,000 to a customer on
FOB shipping point terms at an invoice value of $31,000. This lot of merchandise was
included in the physical inventory for 2001.
Raw materials were received by TKL on 31 December 2001 at an invoiced value of
$45,000. Related transport costs amounted to $3,000, custom duty $2,000, GST of
$1,000. These costs were not taken up in the books.
Required:
A. Explain when should the TKL recognize the revenue from Hwang Gan
Ltd? State any assumptions that you make.
B. What should be the value of the inventory of TKL on 31 December 2001?
C. BONUS QUESTION: Taking into account the information given, recompute the profit of TKL for the year 2001 based on generally accepted
accounting principles.
End of Part A (70 marks)
Page 6
(3 marks)
(4 marks)
(3 marks)
Term 2 2001/2
2.
Given the following information (taken from the records of Tellers Corporation for the
month ended December 31, 2001), what is the net income?
Advertising expense
$20,625
Accounts payable
13,450
Retained earnings (Dec 1, 2001) 57,860
Rent expense
11,728
A. $45,110
B. $35,310
C. $31,185
D. $11,385
E. None of the above
13,095
14,125
93,550
16,917
3.
4.
At 1 July 2000, the allowance for doubtful debts account of LGT Ltd was $4,600. The
accountant of the company has calculated that the appropriate amount of allowance for
doubtful debt as at 30 June 2001 is $7,300 based on the aging method. Bad debt totaling
$3,200 were written off during the year and a previously written off debt of $1,700 were
recovered. The necessary general journal entry to bring the allowance for doubtful debts
to the appropriate amount on 30 June 2001 would be:
A. DR Bad Debt Expense $3,100
CR Accounts Receivable $3,100
B. DR Bad Debt Expense $4,200
CR Allowance for Bad Debts $4,200
C. DR Bad Debt Expense $5,900
CR Allowance for Bad Debts $5,900
D. DR Bad Debt Expense $4,200
CR Accounts Receivable $4,200
E. None of the above
Page 7
Term 2 2001/2
5.
In a period of rising prices, which of the following inventory methods generally results
in the lowest reported net income?
A. FIFO method.
B. LIFO method.
C. Average-cost method.
D. Specific-identification method.
E. All of the above
6.
7.
A company bought a truck on 1 January 2001 for $30,000. The truck has a five-year
estimated useful life and a $5,000 residual value, depreciated using the straight-line
method. Assuming that there is no other purchases or disposal of fixed assets, on 31 Dec
2003, the Truck account will show a balance of:
A. $16,000.
B. $18,000.
C. $20,000.
D. $21,000.
E. $30,000.
8.
If a company issued bonds at a discount, the discount is amortized over the life of the
bonds and:
A. Decreases the periodic interest payment below the interest expense charged.
B. Increases the periodic interest expense charged above the interest payment made.
C. Increases the periodic interest payment made above the interest expense charged.
D. Decreases the periodic interest expense charged below the interest payment made.
E. None of the above
9.
Page 8
Term 2 2001/2
10. For purposes of determining the amount of a capital expenditure, the acquisition cost of
equipment would NOT include:
A. Transportation cost.
B. Insurance cost during transit.
C. Cost of testing equipment during installation.
D. Repair cost of damage incurred during installation.
E. All of the above are included in the acquisition cost.
11. Wallaby Inc. has two stocks: preference stock (6%, $10 par, 45,000 shares authorized,
10,000 shares issued) and common stock ($7 par, 250,000 shares authorized, 120,000
shares issued). Assume that there is no tax. If Wallaby pays a $64,000 dividend, and if
the preferred stock is cumulative and two years dividends are in arrears, common
stockholders will receive:
A. $32,000
B. $52,000
C. $58,000
D. $46,000
E. None of the above
12. Which one of the following errors causes net income to be overstated?
A. Failure to provide for allowance for bad debts
B. Failure to record collection of an account receivable
C. Failure to record customer deposits for services to be performed next year
D. Failure to adjust a prepaid expense previously recorded as expenses
E. Failure to record an accrued revenue adjusting entry
13. A direct purchase of property through the issuance of shares:
A. Will be shown as an investing outflow and a financing outflow
B. Will be shown as an investing inflow and a financing inflow
C. Will be shown as an investing outflow and a financing inflow
D. Will be shown as an investing inflow and a financing outflow
E. Will not be shown in either the investing nor financing sections
14. Which of the following is NOT usually disclosed as a note to the accounts?
A. Revenue recognition policies
B. Additional information about the summary totals
C. Contingent Liabilities
D. Accounts that have been highlighted as suspicious by the auditors
E. None of the above, i.e. all can be disclosed as a note to the account
Page 9
Term 2 2001/2
15. Rios inventory records in October shows that it has 200 opening inventory balance at $5
each. It made 4 lots of purchases: 150 units on Oct 5 at $6 each, 250 units on Oct 10 at
$5.75 each, 180 units on Oct 24 at $6.20 each and 100 units on Oct 27 at $6.10 each.
Sales were as follows: 175 units on Oct 8, 225 units on Oct 15, and 300 units on Oct 28.
What is the cost of goods sold for the month of Oct if periodic average cost inventory
method is employed?
A. $3,957.50
B. $4,027.84
C. $4,159.75
D. $4,163.50
E. None of the above
Page 10