Accounting Unit 3 practice exam 2011 and suggested solutions · Students are permitted to bring into the examination room: pens, pencils, highlighters, erasers, sharpeners, rulers
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Accounting Unit 3 practice exam 2011 and suggested solutions
Phil Hutton Matthew Christopher
Camberwell Grammar School
The following VCE Accounting Unit 3 practice exam consists of two questions, each worth 45 marks. An answer book and suggested solutions follow the question book.
Please note that the questions and solutions have no official status and teachers should refer to the Victorian Curriculum and Assessment Authority website http://www.vcaa.vic.edu.au for further information.
The practice exam and solutions are based on the authors’ interpretation of the VCE Accounting Study Design.
Teachers are advised to preview and evaluate all practice exam material before distributing it to students.
Disclaimer: This practice examination has been written by the authors (Phil Hutton and Matthew Christopher) for use with students of VCE Accounting. This does not imply that it has been endorsed by the Victorian Curriculum and Assessment Authority (VCAA). While every care is taken, we accept no responsibility for the accuracy of information or advice contained in Compak. Teachers are advised to preview and evaluate all Compak classroom resources before using or distributing them to students.
Ursula Esby runs a small computer store called U Esby’s Computers, selling local and imported computer componentry (parts) to businesses. Ursula uses a double-entry accrual accounting system and records stock transactions with the perpetual inventory system. Other features of her accounting system include:
• the use of control accounts and subsidiary records for debtors, creditors and stock
• the FIFO cost assignment method for stock
• reports are prepared quarterly.
Ursula’s bookkeeper recorded her transactions for the quarter ending 31 March 2011. The totals for the special journals and the entries for the General Journal are shown below.
Cash Receipts Journal Date 2011
Details Rec. No.
Bank Disc. Exp.
Debtors Cost of Sales
Sales GST Sundries
31 Mar. Totals to date 158 067 1 605 53 500 38 608 96 520 9 652 0
(Correcting entry for 3 months rent incorrectly recorded as Prepaid Insurance. Memo #226)
Ursula discovers that the following documents from the period have not been recorded.
DOCUMENT 1
U ESBY’S COMPUTERS ABN: 463 675 734 54 Balwyn Road Balwyn North VIC 3128 Date: 31 March 2011
MEMO 227
To: Abdulah Mohhamed, Accountant Re: Donation of Stock Abdulah please note that I gave 4 computer systems costing $10 500 in total to loyal customers in country Victoria affected by the recent flooding. I am hopeful that this will enhance our reputation and lead to future sales in the area. Kind regards Ursula Esby
U ESBY’S COMPUTERS ABN: 463 675 734 54 Balwyn Road Balwyn North VIC 3128 Date: 31 March 2011
MEMO 228
To: Abdulah Mohhamed, Accountant Re: Debtor – Dellios Traders I have received a letter from Zhang and Zhao, Chartered Accountants, stating that Dellios Traders has been declared bankrupt. It had a cheque attached for $6 000 (Cheque #455662) and stated that we will not receive the other $24 000 owed. Please make the necessary entries in our records and send them a receipt for the payment (Receipt #2445). Kind regards Ursula Esby
DOCUMENT 3
COASTAL TRADING 150 Orchard Road Street SINGAPORE 787572 Date: 31 March 2011 Tax Invoice No: 265432 Customer: U ESBY’S COMPUTERS 54 BALWYN ROAD BALWYN NORTH VIC 3128 AUSTRALIA Item Quantity Unit Price Total Price 22” LCD Monitors 1 500 500 26” LCD Monitors 1 650 650 TOTAL SGD 1 150
Terms 2/7 Net 30 Note: All prices are in Singapore dollars
Ursula’s accountant has advised her that on 31 March 2011 the conversion for the above transaction would be $920 Australian dollars.
1.1.1 Record the relevant documents into the appropriate journals. Total the special journals. (Narrations are not required in the General Journal.)
2 + 2 + 1 + 2 + 1 = 8 marks
1.1.2 Complete the Stock Control and Cash at Bank ledger accounts using the information contained in the journals.
5 + 3 + 1 = 9 marks
1.1.3 Using the Stock Control account in question 1.1.3 for reference, explain the purpose of a cross reference in a ledger account.
2 marks
1.1.4 Referring to the General Journal entry on 3 February, record the appropriate journal entry at the end of the reporting period. (A narration is required.) (Memo #229)
3 marks
1.1.5 Referring to the appropriate accounting principle, justify the value at which you recorded Document 3 in the journals of U Esby’s Computers.
2 marks
1.1.6 Explain why a business such as Sun and Ye Imports would issue a Statement of Account.
1.2.1 Use the entries in the Subsidiary Ledger accounts to reconstruct the Credit Purchases Journal and relevant entries in the Cash Payments Journal. You are to total the Credit Purchases Journal and the highlighted columns in the Cash Payments Journal.
4 + 1 = 5 marks
1.2.2 Complete the Creditors Control account in the General Ledger.
4 marks
Required
1.3.1 Using all the information in Question 1, complete the Cash Flow Statement for U Esby’s Computers for the three months ending 30 June 2011. Some of the information has been included for you.
1.3.2 During the reporting period some of the Prepaid Rent Expense was consumed. Explain why all of the Rent Expense is shown as ‘Prepaid’ in the answer book.
Cameron Armstrong owns and manages a business that buys and sells bicycles, bicycle accessories, and bicycle carriers for cars. His business is called Bikemart. Cameron maintains a double-entry accounting system using a perpetual inventory system for stock, the accrual method for recording and reporting, and the FIFO method for cost assignment of his stock. The following two accounts are maintained as Control accounts.
Balances at 1 January 2011 Debtors Control $16 000
• Memorandum X54 is for 3 bicycle carriers, which Cameron withdrew for his own family.
• All bicycle carrier stock is bought and sold on credit.
• GST is charged at 10% on all purchases and sales.
• There were no bad debts during January 2011.
• A physical stocktake done on 31 January 2011 revealed 175 bicycle carriers in the store. (Memorandum X59).
Required
2.1 Suggest one advantage of a firm maintaining control accounts.
1 mark
2.2 The balance of the Stock Control account at 1 January 2011 is different to the balance for bicycle carriers on the stock card at the same date. Provide a reason for this.
1 mark
2.3 Use the stock card to calculate the Cost of Sales for bicycle carriers.
1 mark
2.4 Stock is sold at a mark-up of 200%. Use the stock card to calculate the Credit Sales of bicycle carriers.
1 mark
In addition to the buying and selling of bicycle carriers as shown on the Stock Card above, the firm buys and sells bicycles and bicycle accessories.
The following transactions relate to these other items during January 2011 (not the bicycle carriers).
Cash Sales $ 50 000
Credit Sales $ 250 000
Cost of Sales $ 100 000
Other information: GST charged on ALL Credit Sales $ 31 036
GST received on Cash Sales $ 5 000
Receipts from Debtors $ 340 000
Discounts allowed to Debtors $10 000
Required
2.5 Complete the Debtors Control account for January to determine its balance at 31 January 2011. Record this balance in the account.
4 marks
2.6 Record the adjustment on the Stock Card as a result of the stocktake.
2.7 Suggest a possible reason for the findings of the stocktake, other than theft or a mistake in the counting of stock during the stocktake.
1 mark
The GST Clearing account for January 2011 is as follows:
GST CLEARING
Date Cross Reference $ Date Cross Reference $
31 Jan. Bank 1 13 000 1 Jan. Balance
13 000
Bank 20 000 31 Jan. Debtors Control
31 036
Creditors Control
2 25 000 Bank
3 5 000
Balance 8 964
58 000
58 000
Required
2.8 Identify the reason for the entries marked 1, 2 and 3.
3 marks
The business had Equipment costing $200 000 at 1 January 2011 and depreciates it at 10% per annum. The cash purchase of further equipment for $40 000 took place on 2 January 2011.
Required
2.9.1 Calculate the Depreciation of Equipment Expense for January 2011.
2.9.2 Record the depreciation adjustment in the General Journal. (A narration is not required.) 2 + 2 = 4 marks
Although wages are paid weekly, there was still $1 800 owing to employees at 31 January 2011.
Required
2.10 Prepare the General Journal entry to record the wages adjustment. (A narration is not required.)
During January 2011, Cameron wrote a memorandum to correct an error made in the accounts.
Memorandum No X60 31/01/11
TO: Jim Green, Accountant
Reason: Correction of Error
Three bicycle carriers were incorrectly recorded as being withdrawn by me for personal use by my family. These carriers are in fact used as display advertising in stores to promote sales.
Signed: C. Armstrong
Required
2.11 Prepare the General Journal entry to record the necessary correction. Refer to the Stock Card. (A narration is not required.)
2 marks
2.12.1 Identify the effect on Net Profit if the correction in 2.11 was not made. Would Net Profit be overstated, understated, or have no effect?
1 mark
2.12.2 Identify the effect on Owner’s Equity if the correction in 2.11 was not made. Would Owner’s Equity be overstated, understated or have no effect?
1 mark
2.13 Referring to a qualitative characteristic, explain the purpose of Cameron recording this request to his accountant in a memorandum to correct an error.
2 marks
The following cash outflows took place during January 2011 in addition to the non-cash expenses and adjustments shown above. Paid to Creditors ($300 000)
2.14 Prepare a Classified Profit and Loss Statement for the reporting period. This is to include all sales of bicycles, bicycle accessories and bicycle carriers.
7 marks
2.15 Calculate total expenses and then complete a Profit and Loss Summary account for January 2011. Revenues for the month totalled $360 360.
1 + 2 = 3 marks
2.16 Referring to the Profit and Loss Statement for January 2011, justify your treatment of discounts as an expense.
2 marks
2.17 Show how the Owner’s Equity section of the Balance Sheet would appear at 31 January 2011.
3 marks
2.18 The owner, Cameron Armstrong, is aware that although Bikemart is making a satisfactory profit, its cash flow has deteriorated causing the bank account to go into overdraft. He is concerned that by charging depreciation on the assets, their carrying value is falling, thereby not providing sufficient cash to eventually replace the assets.
Required
2.18.1 Is Cameron correct to be concerned? Justify your answer
2.18.2 Using the information in the question, explain how a profit has been made in January while the bank has fallen into overdraft.
2 marks are allocated to each entry in the Purchases Journal and the General Journal. 1 mark is allocated for the entry in the Cash Receipts Journal and 1 mark for totalling the journals.
BIKEMART Classified Profit and Loss Statement for January 2011
REVENUES $ $
Credit Sales 310 360
Cash Sales 50 000 1 360 360
Less Cost of Goods Sold
Cost of Sales 1 120 120
Gross Profit 240 240
Less Stock Loss 1 52
Adjusted Gross Profit 240 188
Less Other Expenses
Depreciation of Equipment 1 2 000
Advertising Expense 1 15 078
Administration Expense 8 000
Wages Expense 1 61 800
Discount Expense 1 10 000 96 878
NET PROFIT 143 310
1 mark as shown; to include correct amount. Minus 1 mark in total for aliens or omission of administration expense. Minus 1 mark if no attempt to calculate net profit.
Explanation Cameron should not be concerned as the charging of depreciation on an asset
does not cause a change in cash flow. It is not creating a fund to replace the asset; it is merely
allocating the cost of the asset over its useful life.
1 mark for not a cash flow. 1 mark for allocation of cost not a fund.
2 marks
2.18.2
Explanation The bank has fallen into overdraft because the cash outflows have exceeded the cash inflows. Some of these cash outflows were not expenses and do not therefore affect the Profit and Loss Statement. Examples are drawings and the purchase of equipment.
1 mark for explanation that cash differs from profit. 1 mark for examples.