7/23/2019 ACCT101 Sample Paper_with Solution http://slidepdf.com/reader/full/acct101-sample-paperwith-solution 1/24 1 SAMPLE PAPER ACCT101 FINANCIAL ACCOUNTING CAUTION: 1.DO NOT rely on this sample paper only 2.The exam coverage may not the same as this sample paper. Please refer to the announcement made in class.
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
(1 mark each and 10 marks in total. Please choose ONE as your best choice.)
Provide the answers (in CAPITAL letter) on the first page of the Answer Script.
1. Which of the following is a true statement?A. A stock split will increase total stockholders' equity but a stock dividend will not.
B. Both a stock split and a stock dividend will increase total stockholders' equity
C. A stock dividend will increase total stockholders' equity but a stock split will not.
D. Neither a stock split nor a stock dividend will increase total stockholders' equity.
2. A company's accountant expenses a payment that should be capitalized. Which ofthe following is TRUE?
A. Revenue is overstatedB. Liabilities are overstated.C. Expenses are overstated.D. Assets are overstated.
3. Which of the following items will NOT appear on the books side of thereconciliation?
A. The bank collected an EFT of $1,000.
B. A nonsufficient funds check of $75 returned to the bank.
C. The bank recorded a $2,000 deposit as $200.
D. The bank charged a service fee of $20.
4. A check was written by a business for $205 but recorded in the cash payments journal as $502. How would this error be included on the bank reconciliation?
A. A deduction on the bank side
B. A deduction on the book side
C. An addition on the bank side
D. An addition on the book side
5. A corporation has 15,000 shares of 10%, $50 par, noncumulative preferred stockoutstanding and 25,000 shares of no-par common stock outstanding. No dividendswere declared in 2008. At the end of 2009, the corporation declares a dividend of$150,000. How the dividend allocated between preferred and commonshareholders?
A. The dividend is allocated $75,000 to preferred shareholders and $75,000 tocommon shareholders.
B. The dividend is allocated $142,500 to preferred shareholders and $7,500 tocommon shareholders.
C. The dividend is allocated $150,000 to preferred shareholders and $0 to commonshareholders.
D. The dividend is allocated $7,500 to preferred shareholders and $142,500 tocommon shareholders.
6. McGrawHill has the following account balances at the end of the currentaccounting period.
Beginning inventory $53,500 Net purchases 75,500 Net sales revenue 93,700A normal gross profit percent is 30%. What is the estimated ending inventory asdetermined by the gross profit?
A. $100,890B. $28,110
C. $63,410D. $65,590
7. An accrued expense is which of the following?
A. An expense that the business has paid but not yet incurredB. An expense that will be incurred and paid in the futureC. An expense that the business has incurred but not yet paidD. An expense that has been paid and incurred
8. On October 2, 2009, Allen Jewelry Company accepted a 120-day, 10% note for $2,400in settlement of an overdue account receivable. Based on a 360-day year, which of thefollowing is closest to the interest revenue accrued on December 31, 2009?
A. $80B. $602) $240D. $40
9. A corporation issues $400,000 of 10%, 5-year bonds at 103. What will be the totalinterest expense over the life of the bonds?
A. $212,000B. $200,000C. $40,000D. $188,000
10. The following information is available for Andersen Company for the month endingJune 30, 2008. Balance per the bank statement is $10,241.43. Balance per books is$9,745.06. Check #506 for $1,948.52 and check #510 for $1,800.25 were not recorded
with the June 30 bank statement. A deposit in transit of $5,113.40 had not beenreceived by the bank when the bank statement was generated. A bank debit memoindicated an NSF check in the amount of $79 written by Bruce Garrett to AndersenCompany on June 13. A bank credit memo indicated an EFT collected by the bank of
$1,900 and interest revenue of $75 on June 20. The bank statement indicated servicecharges of $35. What is the correct cash balance per books?
A. $11,606.06E. $12,000.06C. $13,000.00D. $14,000.00E. None of the above
Hong Leong Electronic Pte Ltd, with a fully paid-up capital of $100,000 ordinary sharesand $50,000 5% non-cumulative preference shares, was incorporated in SingLand on 1January 2008. The trial balance below has been extracted from the general ledger ofHong Leong Electronic Pte Ltd as at December 31, 2008.
Unadjusted Trial Balance of Hong Leong Electronic Pte Ltdas at December 31, 2008
Dr Cr
Accounts Receivable 407,700
Inventory (31December 2008) 115,000
Cash 30,000
Prepaid Rent 16,000
Office Equipment 50,000
Sales Demonstration Equipment 46,000
Accounts Payable 116,200
Note Payable 50,000
Allowance for Uncollectible Accounts 8,800
Provision for Warranty Repairs 2,100
Sales Revenue 1,055,800
Ordinary Share Capital 100,000
Preferred Share Capital 50,000Cost of Goods Sold 493,000
Salary Expense 130,600
Advertising Expense 81,800
General Office Expense 12,800
Total 1,382,900 1,382,900
The following facts came to light after completion of the unadjusted trial balance (thecompany makes adjustments annually):
a. Inventory physical stocktaking on 31 December amounts to $100,000. b. The last day of the period, 31 December 2008, was a Wednesday. The staff is paid
on Friday for their five-day working week ending on Friday. Staff salaries are$2,510 per week.
c. Hong Leong purchased the office equipment on 1 January 2008 for $50,000 FOBshipping point. Transportation costs and installation costs amounted to $1,500 and$4,500, respectively. Hong Leong recorded the office equipment at $50,000 andrecorded the transportation and installation costs under the General OfficeExpense. The useful life of the office equipment is expected to be 10 years withresidual value of $2,000. The company decides to depreciate the office equipmentusing straight-line method.
d. The sales demonstration equipment was purchased on 1 April 2008. The usefullife of the equipment is 5 years with $6,000 residual value. Hong Leongdepreciates the sales demonstration equipment by double-declining method.
e. Hong Leong issued a 12% three-month note payable of $50,000 on 1 December
2008.f. Hong Leong estimates that the total cost of warranty claim for the electronic
products sold will be 1% of sales revenue in the year of sale.g. The year-end audit revealed that cash payment of $5,000 to the supplier was
erroneously recorded as a debit to Cash account and a credit to Accounts Payableaccount.
h. On April 1, 2008, Hong Leong paid office rental in advance. The amount paidwas for a two-year period.
i. $7,700 of Accounts Receivable needs be written off. Hong Leong then record theuncollectible-account expense based on the aging of receivables, as follows:
j. Hong Leong declared a dividend of 10% for the common stockholders and regulardividends for the preferred stockholders. The declaration has not been recorded byHong Leong.
Provide the necessary adjusting journal entries for the above. No explanations arerequired for the adjusting journal entries.
HDC issued $2,000,000, 8-pecent bonds on 1 January, Year 1 when the market rate ofinterest was 10%. The bonds required HDC to make semiannual payments of 4% of face
value, on June 30 and December 31 of each year. The bonds mature on December 31,Year 5. HDC amortizes bond premium/discount by the effective-interest method.
Periods Present Value of $1 Present Value ofOrdinary Annuity of $1
Required (all computations are rounded to the nearest dollar)
1) Provide the journal entry when HDC issued the bonds on January 1, Year 1.
2) Provide the journal entry for recognizing interest expense and interest paid onJune 30 and December 31,Year 1.
3) Show how HDC would report the bonds on its balance sheet on December 31,
Year 1.
4) On January 1, Year 2, these bonds are traded at 110 in the market. On this date,HDC repurchased 20% of these bonds on the open market and retired them.Provide the journal entry to record the repurchase.
Part A:The Hill Company purchased some equipment at July 1, 2008, for $16,000. Hill also paid
freight costs $1,500 and sales tax $500 in addition. Hill’s fiscal year starts from January1. Upon receipt, the following expenditures were incurred in 2008:
Major repair prior to use $1,000Installation 600Testing prior to use 400Operating costs after start of production 1,500Minor repair and maintenance after start of production 500
The company adopted a straight-line depreciation method and estimated that the usefullife of the equipment to be ten years from July 1, 2008. Hill expects that the residualvalue of the equipment will be $2,000 at the end of the useful life.
Required:
1) Determine the total depreciable value of the equipment.
2) Determine the book value of the equipment at December 31, 2008.
3) Hill received an offer to sell the equipment at January 1, 2009. If Hill sold theequipment for $23,000 in cash, what journal entry would they record for the sale ofthe equipment? No entry explanation is required.
Part B:Assume that the book value of the equipment above at December 31, 2008 is $22,000 andHill decided not to sell the equipment. On Jan 1 2009, a major improvement to theequipment took place, costing $900. As a result, the annual capacity was expanded, butits estimated life and residual value remained unchanged. On Jan 1 2010, due to signs of
severe wear, Hill revised its estimated useful life to be only five remaining years fromJanuary 1, 2010 and its residual value to be $1,000.
Required:
1) Determine the amount of depreciation expense for the equipment in 2009.
2) Determine the amount of depreciation expense for the equipment in 2010.
MBFA Corporation Limited is a manufacturer of furniture, with fiscal year ending onMay 31. It makes high-end home and office furniture for customers and design
innovative products and services to meet the customers’ needs. The following schedule istaken from its past three years’ annual reports (in US dollars). MBFA uses the allowancemethod to account for potentially uncollectible receivables.
Allowance forUncollectible
Accounts
Balance atBeginning of
Year
Added toExpenses
Write-offs Balance atEnd of Year
Year ended May31, 2007
111,000 30,000 A 80,000
Year ended May31, 2008 80,000 20,000 16,000 B
Year ended May31, 2009
C D 29,000 90,000
*Note: Assume that no recovery of accounts previously written off occurred from 2007 to2009.
Required:
1) Solve for the four unknowns (A to D) in the table above
2) Make all the journal entries which are related to the “allowance for uncollectibleaccounts” in 2008 (using the figure provided).
3) For this question only, assume that MBFA uses the direct write-off method. In thiscase, what would be the journal entries for uncollectible account expenses for2008?
4) Assume in 2009, the ending balance of the allowance is 10% account receivablesending balance. a) How much should it report for net account receivables on its
balance sheet at the end of 2009? b)Show the partial balance sheet related toaccount receivables in 2009.
Required: Use the letters below (either A or B or C) to indicate the effect of each ofthe four transactions (refer to 1 through 8 in the table below) on a firm's cash flows andon the same firm's net income. Your concern should be with only the transactiondescribed and at the date of the transaction described. Ignore related transactions prior to or after the transaction described.
A. IncreaseB. DecreaseC. No effect
Effect onTransactions Total Cash
Flows
Net Income
I) Sale of long-term operating asset for $20,000 cash.The book value of the operating asset at date of salewas $12,000.
1.? 2.?
II) Depreciation expense of $5,000 was recorded. 3.? 4.?
III) Purchase of long-term operating asset for $10,000on a credit basis (A note is issued). 5.? 6.?
IV) Cash collection of accounts receivable = $5,000. 7.? 8.?
Equipment 4,000 0 Total Liability 3,180 850Less: AccumulatedDepreciation (100) Shareholders’ Equity Machine 0 1,000 Share Capital 7,000 5,000Less: AccumulatedDepreciation 0
(500) Retained earnings 810 720
Less: Treasury stock (1,000) 0Total shareholders'
equity 6,810 5,720
Total asset 9,990 6,570
Total Liability &
Shareholders’ Equity 9,990 6,570
Additional Information: The machine was sold on Jan. 1st. 2010The maturity of the note payable issued in 2010 is 2 years. No noncash investing activity in 2010. No noncash financing activity in 2010.
Required: Prepare a statement of cash flows for the year ending December 31, 2010using INDIRECT method.
BB Co. is a food wholesaler that uses a perpetual inventory system for all of its food products. The first-in, first-out (FIFO) method of inventory valuation is used.
Transactions and other related information on coffee carried out by BB Co. are given below for October 2010:
Standard unit of packaging: Case containing 24, one-pound jarsInventory 1 Oct 2010: 1,000 cases @ $60.20 per casePurchases: (1) 10 Oct – 1,600 cases @$62.10 per case
(2) 20 Oct – 2,400 cases @$64.00 per case
October sales: (1) 17 Oct – 1,500 cases @ $75 sale price per case(2) 27 Oct – 1,200 cases @ $76 sale price per case
Returns and allowances: On 28 Oct, a customer returned 50 cases sold on 27 Octthat had been damaged in transit. The customer’s accountwas credited for $3,800
Required:
1) Assuming no shrinkages, calculate (a) the number of cases in ending inventory as of31 Oct; (b) the ending inventory cost as of 31 Oct; and (c) the cost of goods sold inOctober.
2) Calculate the ending inventory cost if the LIFO method were applied instead.
3) BB paid the supplier the full amount on 18 Oct for the purchases made on 10 Oct.Record the journals for the purchases made on 10 Oct and the payment made on 18Oct.
4) Record the journal for the sales returns and allowances on 28 Oct.
5) Assume that inventory net realizable value at 31 Oct 2010 is $56 per case.
Record the journal to apply the lower of cost or net realizable value rule.
The answer to each question is independent and should not affect the answers to thenext questions. Calculate all ratios up to four decimal places.
Required:
1) Has CW Co.’s ability to meet the short term and long term liabilities improved orworsened between the years 2007 and 2006? Use four appropriate financial ratios tosupport your answers. Explain the asset or liability items that contribute to the changein financial ratios.
2) If the accounts receivable for 2007 is to include additional write-offs of $500k andadditional allowance of $600k, recalculate the ratios in part (1) for 2007 that areimpacted.
3) One single large customer TQ accounts for 60% of the sales in both years 2007 and2006. The gross profit margin of sales to TQ is 15%.
What is the gross profit margin of sales to the remaining customers for 2007(excluding TQ)? Discuss the implication to CW Co.’s profitability if TQ were to stopdealing with CW Co.
4) Use vertical analysis of income statements for the years 2006 and 2007 and explainthe items that contribute to the change in profitability from 2006 to 2007.
5) How well is CW able to generate returns from its assets and shareholder’s equity inthe year 2007? Calculate two appropriate financial ratios.
Is the return to shareholders higher or lower than the return to creditors?
Depreciation Expense 100Loss of sale of machine 100Increase in Account Receivable (1,850)
Increase in Inventory. (200)Increase in Prepaid Rent (50)Decrease in Account Payable (800)Decrease in Accrued liabilities (50)Increase in Interest Payable 180
Investing (3,600)Purchase of equipment (4,000)Sale of Machine 400
Financing 3,500
Proceeds from sale of common stock 2,000Proceeds from issuing note 3,000Dividend payment (500)Purchase of Treasury share (1,000)
Net Cash Flows for the period (2,080)Beginning cash balance 5,695Ending balance 3,615
Current ratio = (51,000+130,000+1,000+1,000)/(105,000+37,000+7,000+8,000) =1.1656Acid test ratio = (51,000+130,000)/(105,000+37,000+7,000+8,000) = 1.1529Debt ratio = 288,000/492,000 = 58.54%Times interest earned = 17,000/4,000 = 4.25
2006:Current ratio = (41,000+83,000+2,000)/(67,000+6,000+16,000+8,000) = 1.2990Acid test ratio = (41,000+83,000)/(67,000+6,000+16,000+8,000) = 1.2784Debt ratio = 168,400/305,400 = 55.14%
Times interest earned = 11,000/2,000 = 5.5
The ability to pay short term debt has worsened from 2006 to 2007. This is shown fromthe drop in current ratios and acid test ratios. The accounts payable and financialliabilities have increased at a higher rate than that of the accounts receivable and cash.
The ability to pay long term debt has worsened from 2006 to 2007. The debt ratio hasincreased while the times interest earned ratio have dropped. The increase in accounts payable and financial liabilities (both short and long term) resulted in a higher debt ratio.The interest expense has doubled but not the income from operations. This caused the
drop in times interest earned.
2) Write-off will debit allowance and credit accounts receivable. No impact to netaccount receivable. No impact to the 4 ratios.
Additional allowance reduces net accounts receivable to $129,400k for 2007.
Revised ratios for 2007:Current ratio = (51,000+129,400+1,000+1,000)/(105,000+37,000+7,000+8,000) =1.1618
Acid test ratio = (51,000+129,400)/(105,000+37,000+7,000+8,000) = 1.1490
Debt ratio = 288000/491400 = 0.5861
Times interest earned = (57,000 – 37,000-3,000- 600)/(4,000) = 4.1
4) 2007:
Sales to TQ = $534000 * 60% = $320,400COGS to TQ = (1-0.15) * 320,400 = $272,340
Sales to remaining customers = $213,600COGS to remaining customers = $477,000 - $272,340 = $204,660Gross profit to remaining customers = $8940Gross profit margin to remaining customers = 8940/213600 = 4.1854%
If TQ were to stop dealing with CW, the gross profit drops drastically to $8940 and net profit turns into a net loss. This is because the gross profit margin to other customers isonly 4.1854%.
Net profit after tax: 2007 (32.4/534 = 6.07%); 2006 (24/326 = 7.36%)
The net profit margin declines from 7.36% in 2006 to 6.07% in 2007 largely due to theincrease in the proportion of general and admin expenses (from 5.52% in 2006 to 6.93%in 2007) as well as the drop in other income from 6.14% in 2006 to 3.37% in 2007, partlymitigated by the increase in gross profit margin from 9.2% in 2006 to 10.67% in 2007(the latter from the drop in COGS from 90.8% of net sales in 2006 to 89.33% in 2007).
CW is able to generate 18 or 19 cents return to every dollar of shareholder investment –relatively good return. CW is able to generate 8 cents return to every dollar of assetutilized.
Where return to shareholder > return to total assets, return to shareholder is higher thanreturn to creditors.