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ACCT1501 Sl, 2005, Mid Session Exam, 15%

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This exam will be run in Week 8, Thursday 28 April and will cover all of the basic
material covered in lectures for weeks 1 to 6 of the course. The exam is a total of
two hours and ten minutes.

Venue Time Two exam seatings


Students with Students with
Upper tea house, Surnames beginning Surnames beginning
Lower tea house and Ab - Lew Li - Zu
Vista room at Start of exam 9:00 am 12:00 pm
Randwick Racecourse* reading time
Exam starts 9.10am 12:10 pm
Exam ends 11 :10 am 2:10 pm

* To check the locations of these examination rooms go to:


http'<>my.unsw.edu.au s1udenl- acadcmicl ifcassesSmel11-CXamiml1iolls -Exam rvlaps. hlml

The recommended readings, additional readings, tutorial and preparation questions


for week 7 and lecture content are all examinable:
WK1 L01 Welcome to Accounting 1A
L02 General purpose financial reports
WK2 L03 The balance sheet
L04 Transaction analysis: A + L = OE
WK3 LOS The profit and loss statement
L06 Transaction analysis: Debits & Credits
WK4 L07 Financial reporting principles
L08 The accounting cycle
WK5 L09 Adjusting the accounts
L10 Preparing financial statements
WK6 L11 Completing the accounting cycle
L12 The worksheet and Sola ire (The Solaire PS itself will not be examined in
this paper, but the concepts discussed in this lecture will)

The exam will be two hours and will be in the same format as the final exam. A
copy of a the Mid-session paper from ACCT1501, Session 2, 2004 follows, and
please not that the exam question 5 is a bank reconciliation not included as an
examinable topic this session.

No supplementary exam will be available for the mid-session.

GOOD LUCK!!!
THE UNIVERSITY OF
NEW SOUTH WALES

ACCT 1501: ACCOUNTING AND FINANCIAL MANAGEMENT lA

Mid-Session Examination Solution


Session 2, 2004

BEFORE commencement of the exam you should enter the following details below:

FAMILY NAME: FIRST NAME: _


TUTORIAL NUMBER: (see back cover of exam for tutorial list)
----
STUDENT ID NUMBER: _

Please place your student ID on your desk.

This exam is two hours plus 10 minutes reading time.


This exam is worth 15% of your final composite mark.
There are five parts to this exam worth 100 marks. Questions are not of equal value.

Question 1 consists of 15 multiple choice questions. You need to answer these on the pre-
printed answer sheet, completing all the personal details, in pencil
Question 2, 3, 4 & 5 are to be answered in the spaces provided in the exam booklet,
using either pen or pencil.
You may leave the exam room at any time up to 15 minutes before the time the exam is
due to conclude. After this time you may leave only when instructed by the supervisor.

PLEASE WRITE CLEARLY

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Question 1 Multiple Choice 30 Marks

To be answered on the pre-printed multiple choice answer sheet.

I. Which of the following categories is not an example of good internal control

a. Maintain effective records


b. Rotation of duties
c. Segregate duties
d. Insurance of important assets
e. None of the above

2. On June 15, 2004 Greer Co. accepted delivery of inventory which it purchased on
credit. As of June 30 Greer had not recorded the transaction. The effect of this
error on its balance sheet for June 30, 2004 would be

a. assets and shareholders' equity were overstated but liabilities were not
affected
b. shareholders' equity was the only item affected by the omission
c. assets and liabilities were understated but shareholders' equity was not
affected
d. assets and shareholders' equity were understated but liabilities were not
affected
e. None of the above

3. Jo Punter is a licensed CP A. She received cash of $25,000 in advance for a


management consulting engagement. The best way to record this transaction is:

a. Dr Cash $25,000: Cr Management Consulting Revenue $25,000


b. Cr Cash S25,000; Dr Management Consulting Revenue $25,000
c. Dr Cash $25,000; Cr Accrued Consulting Revenue $25,000
d. Dr Cash $25,000; Cr Unearned Consulting Revenue $25,000
e. None of the above

4. Which of the following is not an essential characteristic of an asset?


a. There must be a future economic benefit
b. It must be legally owned by the entity
c. The entity must have control over the asset
d. The transaction giving control over the asset must have occurred
e. None of the above i.e. all are essential

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5. Which of the following statements is not an objective of financial reporting?

a. Provide information that is useful in investment and credit decisions.


b. Provide infonnation about enterprise resources, claims to those resources,
and changes to them.
c. Provide information on the liquidation value of an enterprise.
d. Provide information that is useful in assessing cash flow prospects.
e. All of the above are objectives of financial accounting

6. The post-closing trial balance contains non-zero balances for:

a. Only the revenue, expense and dividends accounts


b. Only the revenue and expense accounts
c. Only asset and liability accounts
d. Only the asset, liability and shareholders' equity accounts
e. None of the above

During the financial year ended 30th June 2003 Anderson & Itz Ltd commenced
business. During the year the company received $72,000 for services rendered during
the year and at the end of the year it was owed $5,000 for work it had done but not yet
been paid for. In addition, the company received $2,000 for an assignment to be
completed in July 2003. The company paid $45,000 for rent, salaries and other
expense incurred during the financial year and a further $4,000 for rent for July and
August 2003.

7. What was the net profit of Anderson & Itz Ltd on a cash basis for the
year ended 30 th June, 2003?
a. $27,000
b. $25,000
c. $32,000
d. $30,000
e. None of the above

8. What was the net profit of Anderson & Itz Ltd on an accrual basis for the
year ended 30th June, 2003?
a. $27,000
b. $25,000
c. $32,000
d. $30,000
e. None of the above.

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9. A basic accounting cycle could involve the following steps:
(I) Source Documents
(2)
(3) Ledgers
(4) Trial Balance
(5) Adjusting Journal Entries
(6) Closing Journal Entries
(7) Post-closing Trial Balance
(8) Financial statements

Step 2 would best be described as:

a. Adjusting entries
b. Invoices
c. Transactions
d. Journals
e. Data entry

10. Calculate total expenses for the month of March given the following:

(l) Paid wages of $60,000 in March of which $10,000 related to work done in Feb
(2) Received an electricity bill of S5,000 in March covering charges for March. It
will be paid in April
(3) Paid commission of$15,000 relating to February Sales

a. $55,000
b. $60,000
c. S65,000
d. $80,000
e. $85,000

11. Inventory purchased for $100,000 is sold on credit for $ 150,000. A perpetual
inventory system is maintained. The journal entries to record the sale are:

a. Dr COGS $100,000
Cr Inventory SI 00,000
Dr Cash at Bank $ 150,000
Cr Sales Revenue $150,000
b. Dr Cash $150,000
Cr Accounts Receivable $150,000
Dr COGS S100,000
Cr Inventory $ 100,000
c. DrCOGS $100,000
Cr Inventory $100,000
Dr Accounts Receivable S150,000
Cr Sales Revenue $150,000
d. Dr Inventory $100,000
Cr COGS S100,000
Dr Sales Revenue $150,000
Cr Accounts Receivable S150,000
e. Dr COGS S100,000
Cr Inventory $100,000
Dr Sales Revenue $150,000
Cr Cash at Bank $150,000

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12. Given the following information related to Newland Ltd, what is the balance of
shareholders equity?
Property Plant and Equipment $1,300,000
Cash $400,000
Accounts Receivable $400,000
Accounts Payable $300,000
Loans to the company $200,000

a. $1,600,000
b. $ I ,400,000
c. $1,300,000
d. $2,400,000
e. None of the above

13. Which of the following is a typical closing entry?


a. Dr Profit and Loss summary Cr Supplies on hand
b. Dr Profit and Loss summary Cr Prepaid insurance
c. Dr Profit and Loss summary Cr Insurance expense
d. Dr Dividends Declared Cr Retained Profits
e. None of the above

14. Hania Limited announced a strong accrual profit of $17.4 million. However, a
glance over the Statement of Financial Position reveals that there is a large
increase in net receivables.
Which of the following is the most likely outcome?
a. Cash profit will be overstated
b. Cash profit will be higher than accrual profit
c. Accrual profit will be understated
d. Accrual profit will equal cash profit
f. Cash profit will be lower than accrual profit

15. Spendthrift Ltd has a petty cash fund. The following expenses were incurred
during the month: Snacks $16.20; and Supplies $24.65. At the end of the
month, Petty Cash is reimbursed. What is the correct journal entry to replenish
the fund?
a. Dr Petty Cash $40.85
Cr Cash $40.85
b. Dr Supplies expense $24.65
Dr Miscellaneous expense $16.20
Cr Cash $40.85
c. Dr Petty Cash $40.85
Cr Supplies expense $40.85
Cr Miscellaneous Expense $40.85
d. Dr Supplies expense $24.65
Dr Miscellaneous expense $ I 6.20
Cr Petty Cash S40.85
e. Both a. and b.

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Question 2 Key Conceptual Terms 10 Marks

Various accounting assumptions, principles, constraints, and characteristics are listed below.
Select those which best justify the following accounting procedures and indicate the
corresponding letter(s) in the space(s) provided. A letter may be used more than once or not
at all.
A. Historical cost F. Economic entity K. Full disclosure
B. Relevance G. Materiality L. Industry practices
C. Monetary unit H. Matching M. Reliability
D. Going concern 1. Accounting period
E. Comparability J. Revenue recognition

B 1. The quality that helps users make predictions about present, past, and future
events.

J or H 2. Recording a transaction when goods or services are exchanged for cash or


claims to cash.

F 3. Preparing consolidated statements.

G 4. Expensing, when acquired, metal office wastebaskets having a life often years.

I 5. The preparation of timely reports on continuing operations.

G 6. Reporting those items that are significant enough to affect decisions.

A 7. Reporting assets at original acquisition values.

M 8. Reporting information that is faithfully representative of economic events.

H 9. Establishment of an allowance for doubtful accounts.

C 10. The ability to add financial statement figures relating to different time periods.

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Question 3 Revenue and Expense Adjustments 24 Marks

The unadjusted trial balance of Ski Fever Company as of December 31, 2004 is presented
below:

Ski Fever Company


Unadjusted Trial Balance
December 31, 2004

ACCOUNTS Unadjusted
Trial Balance
DR eR
$ $
Cash 19,800
Short-term Investments 4,050
Accounts Receivable 40,000
Allowance for Doubtful Debts 420
Inventory 16,800
Supplies on Hand 1,040
Equipment 49,000
Accumulated Depreciation 9,500
Accounts Payable 4,400
Loan Payable 4,250
Share Capital 40,000
Retained Earnings 25,340
Cost of Goods Sold 238,520
Office Salaries 20,800
Sales Commissions 29,000
Rent Expense 7,200
Mise. Expense 2,200
Rent Revenue 14,400
Sales 330,100
TOTALS 428,410 428,410

Required: As the accountant for Ski Fever Company, you are to

A. Prepare adjusting journal entries based on the following data: (10 Marks)

a. A physical stock take of supplies as at December 31 showed $280 are currently in


stock. (Assume that the value of supplies is material)
b. On September 30, 2004 Ski Fever received $14,400 rent from its lessee for an
eighteen-month lease beginning on that date.
c. The loan was taken on October I, 2004, with interest at 8%. Interest is payable
annually.
d. On November 30,2004 Ski Fever entered into a 12 month lease of a show room
from Snow Hut Limited. Provisions of Ski Fever's lease contract specify that rent
payments must be made one month in advance. The monthly rent payment
amounts to $900 per month. As of December 31,2004 the January rent has been
paid.
e. Salesmen are paid commission of 10% of sales. December sales were recorded at
$28,000. Commissions on sales made for December have not yet been paid.

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A. Adjusting journal entries: 2 marks for each Jr, ! amoun!, ~'2 fur each account

a. The correct ending balance is $280.An adjustment of (1,040-280) $760 is


required to account for supplies that have been used.

Supplies Expense 760


Supplies 760

b. Rent revenue for eighteen months is $14,400. It has all been recorded as Rent
Revenue, rather than unearned rent revenue. The monthly rent is equal to $14,400
718 = $800. Since signing the lease only three months have passed or 15 months of
rent remains unearned ($12,000).

Rent Revenue 12,000

Unearned Rent Revenue 12,000

c. The loan was taken out on October 1, bearing interest at 8%, due Feb. 1,2004.
Loan is 4,250, interest is 8 %, need interest expense October 1 to December 31 - 3
months

Interest Expense .. 85
Interest Payable 85
($4250 x .08 x 3/12 = $85)

d. Provisions of a lease contract specify rent payments must be made one month in
advance, with monthly payments at $900/mo. This provision has been complied
with as of Dec. 31, 2003. Since the trial balance contains no account for Prepaid
Rent, and the lease has been paid in advance, the $900 lease payment has
apparently been debited to Rent Expense. An adjustment must be set up for the
Prepaid Rent.

Prepaid Rent 900


Rent Expense 900

e. Salesmen are paid commissions of 10% of sales. Commissions on sales for the
last week of December have not been paid. 10% of sales is 10% x $330,100, which
is $33,010. The balance in the Sales Commissions account is $29,000 before
adjustment, indicating that $4,010 of commissions are accrued but unpaid.

Sales Commissions 4,010

Sales Commissions Payable... ... . .. .. . . . ... . .. ... 4,010

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B. Prepare a Statement of Financial Position as at December 31, 2004. (14 Marks)

Ski Fever Pty Ltd


Statement of Financial Position
as at December 31 1 mark
ASSETS 1 mark CA/CL
Current Assets
Cash 19,800
Prepaid Rent 900
Short-term Investments 4,050
Accounts Receivable 40,000
Less Allowance for Doubtful Debts 420
Net Accounts Receivable 39,580
Inventory 16,800
Supplies on Hand 280
Total Current Assets 81,410
Non-Current Assets
Equipment 49,000
Less Accumulated Depreciation 9,500
Written Down Value 39,500

TOTAL ASSETS 5 120,910


LIABILITIES
Current Liabilites
Accounts Payable 4,400
Unearned Rent Revenue 12,000
Interest Payable 85
Sales Commission Payable 4,010
Total Current Liabilities 20,495
Loan Payable 4,250
TOTAL LIABILITIES :2 marks 24,745
NET ASSETS 96,165
SHAREHOLDERS' EQUITY
Share Capital 40,000
Opening Retained Earnings 25,340
Plus Profit for the Year 30,825
Closing Retained Earnings 56,165
SHAREHOLDERS' EQUITY 96,165

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Question 4 Accounts Receivable 20 Marks

McChuck Computer Sales supplies the following information:


At 1 July 19X7 Accounts Receivable totalled $80,000, while the Allowance for Doubtful
Debts was $2,000.
At 30 June 19X8 Accounts Receivable totalled $175,000 (after debt write-offs of
$1,700). Ageing analysis of the $175,000 revealed the following:
Days Outstanding: Amount Doubtful Debts
0-30 $98000 1%
31 - 60 32000 2%
61 - 90 30000 5%
91 - 120 6000 50%
Over 120 9000 60%

Information relating to the year ended 30 June 19X8:


Credit Sales $1 000000
Bad Debts Written Off 1700
Cash Received from Debtors 900000
Sales Returns & Allowances 3300

In addition, a debtor who owes $5,000 and whose account is only 60 days old has been
declared bankmpt. It is highly probable that the whole amount will be lost. No entry has
yet been recorded for the likely loss.
Required:
A. (17 Marks)
Using T-accounts show the Accounts Receivable and the Allowance for Doubtful Debts
accounts as they would appear after all entries (including adjusting entries) have been
prepared and posted, on the assumption that the end-of-year-Allowance for Doubtful
Debts is to be based on an ageing analysis of Accounts Receivable. Show the other
account(s) affected by each ledger account entry.

Accounts Receivable
Date Particulars Amount Date Particulars Amount
1-Julo/bal 80,000 ADD 1,700
Sales 1,000,000 Cash 900,000
SR&A 3,300
ADD 5,000
Bal 170,000
1,080,0000 1,080,0000

170,000

Allowance for Doubtful Debts


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Date Particulars Amount Date Particulars Amount
ADD 1,700 38,169 o/bal 2,000
ADD 5,000 BDE 16,120
bal 11,420
18,120 18,120
bal 11,420

mark for each correct entry. " for amount and mark for other account named
excluding closing balance, except BOE, bclmN, v,hich is worth five marks
including calculation

Calculation of ADD
days amount factor
30 98000 1% 980
60 27000 2% 540
90 30000 5% 1500
120 6000 50% 3000
Over 120 9000 60% 5400
170000 Total= 11420

B. ( 3 Marks)

List three controls which can be applied to make help ensure that accounts receivable is
correctly stated.

regular reconciliation of subsidiary ledgers


sending of customer statements
follow up disputed items
regular monitoring of payments
regular monitoring of doubtful amounts, or other reasonable controls

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Question 5 Bank Reconciliation 16 Marks

The bank reconciliation statement for JPG Pty Ltd at March 31 is shown below.

JPG Pty Ltd


Bank Reconciliation
as at March 31

$ $
Debit Balance as per bank statement 3,521
IPlus unrepresented cheques:
~971 274
6982 591
6995 132 997
4,518
Less Outstanding deposit (894
Credit Balance as per company records 3,624

The bank statement received at the end of April shows the following:

Bank Statement
Statement Period
31 !3!0 I - 30!4!0 I
DR CR $
31-Mar Balance Brought forward 3,521DR
l-Apr Cash! cheque 894 2,627DR
2-Apr 6971 274 2,90lDR
4-Apr Cash! cheque 621 2,280DR
5-Apr Cash! cheque 524 1,756DR
7-Apr 7004 467 2,223DR
8-Apr 7003 512 2,735DR
I1-Apr Return - insufficient funds 77 2,812DR
12-Apr 7007 III 2,923DR
13-Apr Cash! cheque 470 2,453DR
7002 98 2,551DR
15-Apr Dividend- electronic transfer 190 2,36lDR
16-Apr Cash! cheque 152 2,209DR
17-Apr 6995 132 2,341DR
19-Apr 7008 474 2,815DR
20-Apr Cash! cheque 423 2,392DR
21-Apr 7006 661 3,053DR
23-Apr Cash! cheque 609 2,444DR
7009 392 2,836DR
24-Apr Cash! cheque 249 2.587DR
25-Apr 7011 163 2.750DR
27-Apr Cash! cheque 311 2.439DR
79-Apr 7010 187 2.626DR
30-Apr 7012 401 3,027DR
Interest on Overdraft 152 3,179DR

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Cash Receipts Cash Payments
Date $ Date Cheque No. $
3-Apr 621 I-Apr 7002 98
4-Apr 524 4-Apr 7003 512
7-Apr 895 5-Apr 7004 467
12-Apr 470 7-Apr 7005 351
15-Apr 152 8-Apr 7006 661
19-Apr 423 II-Apr 7007 III
22-Apr 609 14-Apr 7008 47
23-Apr 249 18-Apr 7009 392
26-Apr 311 22-Apr 7010 187
29-Apr 248 24-Apr 7011 163
4502 28-Apr 7012 401
30-Apr 7013 32
384

The "Return-NSF" item on the bank statement on April 11 was a dishonoured cheque
from a customer.

Required:
1. What is the April 30 adjusted cash balance? (10 Marks)

Ending balance per company records


(3 624 + 3 849 - 4 502) 2971
Add: Decreases reported on bank statement but not
entered in company records
Cheque returned - N.S.F. 77
Interest on overdraft 152 229
3200
Deduct: Receipts reported on bank statement but not
entered in company records:
Dividend 190
Adjusted bank balance 3010 CR

One mark for correct starting balance, note that the starting balance is a
credit balance er 3,624
1 12 marks each for correct treatment of cash receipts (deduct 4,502) and
cash payments ( add 3,849 ) People need to be careful when the bank account
is in debit (credit in your books). Note in the answer guide we begin with a
bank "debit" therefore we are adding unpresented cheques and deducting
outstanding deposits. Alternatively if you put is a book credit ("negative"
beginning balance), you will then add in transit deposits and subtract
outstanding cheques.
2 marks each for the adjusting items: Cheque NSF- add 77; Interest - add
152 and dividend -less 190

15
2. Prepare journal entries to adjust the records of the company (6 Marks)

Journal
$ $
Cash at Bank 190
Dividend revenue 190
Accounts Receivable/ Debtors - cheque returned 77
Interest Expense 152
Cash at Bank 229

2 marks for first JE


4 marks for second, or may be presented as two separate JE

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