ACCT7101 Accounting Final exam - Take Home Assessment
Course code and name: <ACCT 7101> Accounting
Assessment window:
You have a 48-hour window in which you must complete your exam. You can access and submit your exam at any time within the 48-hour window. Although you are provided with the 48 hours to complete and submit your exam, the expectation is that it will take most students between 3–4 hours.
Weighting: This assessment is weighted at 30% of your total mark for this course.
Permitted materials: This is an open book exam – all course materials are permitted.
Part I – Multiple choice questions (25 marks)
For questions 1-15, there is only one correct answer. Please mark the most appropriate answer with X in the bracket [ ]. Note that each question carries 1 mark.
1. Which of the following errors would cause the trial balance to be out of balance?
[ ] A. A payment of $120 to a creditor was posted as a debit of $120 to Accounts payable and a debit of $120 to Cash.
[ ] B. Cash received from a customer on account was posted as a debit of $240 to Cash and a credit of $240 to Accounts payable.
[ ] C. A payment of $67 for supplies was posted as a debit of $76 to Supplies and a credit of $76 to Cash.
[ ] D. A transaction was not posted.
2. Which is the correct order for preparers of financial reports in applying various aspects of GAAP?
[ ] A. Conceptual framework, accounting standards, concepts and principles.
[ ] B. Accounting standards, conceptual framework, concepts and principles.
[ ] C. Accounting standards, concepts and principles, conceptual framework.
[ ] D. There is no particular order.
3. At the end of the financial year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?
[ ] A. Profit will be overstated for the current year.
[ ] B. Total assets will be understated at the end of the current year.
[ ] C. The statement of financial position and income statement will be misstated but the statement of changes in equity will be correct for the current year.
[ ] D. Total assets will be understated at the end of the current year.
4. If a cheque correctly written and paid by the bank for $525 is incorrectly recorded on the company's books for $500, the appropriate treatment on the bank reconciliation would be to:
[ ] A. Add $25 to the cash at bank book balance.
[ ] B. Add $25 to the bank's balance.
[ ] C. Deduct $25 from the cash at bank book balance.
[ ] D. Deduct $25 from the bank's balance.
5. Which one of the following items is unnecessary in preparing a statement of cash flows?
[ ] A. Determining cash from financing and investing activities.
[ ] B. Determining cash from financing and investing activities.
[ ] C. Calculating the cash provided by operations.
[ ] D. Determine the cash in all bank accounts.
6. Davies Company use the units-of-production method in computing depreciation expense. A new plant asset is purchased for $20,000 that will produce an estimated 100,000 units over its useful life. Estimated residual value at the end of its useful life is $2,000. What is the depreciation cost per unit?
[ ] A. $0.20.
[ ] B. $0.18.
[ ] C. $2.00.
[ ] D. $1.80.
7. In a vertical analysis of the statement of financial position, the 100 percent figure is:
[ ] A. Total liabilities.
[ ] B. Cost of sales.
[ ] C. Profit.
[ ] D. Total assets.
8. Which of the following is not a basic principle of cash management?
[ ] A. Invest idle cash.
[ ] B. Increase collection of receivables.
[ ] C. Keep inventory levels high.
[ ] D. Don’t pay liabilities earlier than expected.
9. Which of the following transactions does NOT affect cash during a period?
[ ] A. Write-off of an uncollectable account.
[ ] B. Collection of an accounts receivable.
[ ] C. Sale of debentures.
[ ] D. Purchase of property, plant and equipment.
10. Orange Ltd reports the following:
End of year Beginning of year
Inventory $55,000 $50,000
Accounts payable $30,000 $10,000
If cost of sales for the year is $100,000, the amount of cash paid to suppliers is:
[ ] A. $85,000.
[ ] B. $125,000.
[ ] C. $75,000.
[ ] D. $115,000.
11. Equipment with a cost of $70,000 has an estimated residual value of $10,000 and an estimated life of 6 years or 25,000 hours. It is to be depreciated by the units-of-production method. What is the amount of depreciation expense for the first full year, during which the equipment was used 4,000 hours?
[ ] A. 11,200$
[ ] B. 9,600$
[ ] C. 40,000$
[ ] D. 4,000$
12. Shareholders of a company may be reluctant to finance expansion through issuing more equity because:
[ ] A. Dividends must be paid on a periodic basis.
[ ] B. The price of the shares will automatically decrease.
[ ] C. Their earnings per share may decrease.
[ ] D. Leveraging with liabilities is always a better idea.
13. A dividend may take any one of three forms. These are:
[ ] A. Cash, debentures or debt.
[ ] B. Cash, liabilities or revenue.
[ ] C. Cash, property or shares.
[ ] D. Cash, debt or liabilities.
14. The board of directors of Paddington Ltd declared a cash dividend of $5.50 per share on 11,000 ordinary shares on 20 November 2020. The dividend is to be paid on 20 December 2020, to shareholders of record on 30 November 2020. The effects of the journal entry to record the declaration of the dividend on 20 November 2020 are to:
[ ] A. Decrease equity and increase liabilities.
[ ] B. Decrease equity and decrease assets.
[ ] C. Increase equity and decrease assets.
[ ] D. Increase equity and increase liabilities.
15. Lion Ltd reported a loss of $15,000 for the year ended December 31. During the year, accounts receivable decreased $6,000, merchandise inventory increased $4,000, accounts payable increased by $5,000, and depreciation expense of $3,000 was recorded. During the year, operating activities:
[ ] A. Generated net cash of $3,000.
[ ] B. Used net cash of $3,000.
[ ] C. Generated net cash of $5,000.
[ ] D. Used net cash of $5,000.
For questions 16-20, there could be more than one correct answers. Please mark all the correct answers with X in the bracket [ ]. Note that each question carries two marks.
16. Which statements about adjusting entries are FALSE?
[ ] A. Adjusting entries are recorded in the general journal but are not posted to the accounts in the general ledger.
[ ] B. Adjusting entries are often made because some business events are not recorded as they occur.
[ ] C. Revenue received before it is earned and expenses paid before being used or consumed are both initially recorded as liabilities.
[ ] D. Adjusting entries always involve two statement of financial position accounts.
17. Which of the following statements are FALSE with respect to inventories?
[ ] A. The FIFO method assumes that the costs of the earliest goods acquired are the last to be sold.
[ ] B. It is generally good business management to sell the most recently acquired goods first.
[ ] C. Under LIFO, the ending inventory is based on the latest units purchased.
[ ] D. The cost of goods available for sale is allocated to the cost of sales and the ending inventory.
18 Which of the following statements are TRUE with respect to liabilities?
[ ] A. A current liability is an obligation that can reasonably be expected to be paid within the operating cycle of a business.
[ ] B. Unearned revenues should be classified as other revenues on the income statement.
[ ] C. The face value of a note is also the principal amount due at maturity of the note.
[ ] D. If a company redeems notes and debentures, it adds debt to its statement of financial position.
19.
Aug 1 Beginning inventory 20 units at $ 20 $ 400
Aug 15 Purchases 65 units at $ 25 1625
Aug 28 Purchases 15 units at $ 10 150
$ 2175
A physical count of inventory on August 31 reveals that there are 30 units on hand. Which of the following statements are TRUE?
[ ] A. Using the average cost method, the value of ending inventory $ 1522.5.
[ ] B. Using the FIFO method, the amount allocated to cost of sales for August is $ 1525.
[ ] C. Using the FIFO method, the amount allocated to cost of sales for August is $ 1650.
[ ] D. Using the LIFO method, the amount allocated to cost of sales for August is $ 1650.
20. Which of the following explanations are TRUE with respect to equity?
[ ] A. Issue price: Amount received on issuance of a share.
[ ] B. Limited liability: The limit of liability of owners of a company to any unpaid amount of capital.
[ ] C. Prospectus: A distribution by a company to its shareholders on a pro rata basis.
[ ] D. Allotment: The process of issuing shares to selected applicants.
Part II – Written questions
Question 1 (11 marks)
Required:
(A) Journalise the following business transactions of Quay Pty Ltd in general journal form.
(B) Prepare year-end adjustments for the following transactions of Quay Pty Ltd whose financial year ends on 30 June.
1. Unrecorded interest receivable that has accrued on investment bonds is $2,500.
2. Service revenues of $27,000 were collected in April. By year end, a third was earned.
3. 2 years’ rent, totalling $14,000, was paid in advance at the beginning of the year.
4. The company has performed services totalling $18,000 but not yet invoiced by the end of the year.
5. During the year, $4,000 of office supplies were purchased. At the end of the year, $2,900 of supplies were left on hand. (Assume that there was no beginning balance of supplies.)
Note:
i. If you believe no journal entry is required, explain the reason(s).
ii. Quay Pty Ltd has two streams of revenue: Sales and service.
iii. Ignore the effect of GST.
iv. Narrations are not required for journal entries.
v. Quay Pty Ltd’s chart of accounts includes the following accounts - Accounts receivable, Cash, Interest receivable, Inventory, Prepaid Rent, Revenue received in advance, Office supplies, Bank loan, Accounts payable, Sales revenue, Service revenue, Interest revenue; Cost of goods sold (COGS), Rent expense, Salary expense, and Supplies expense.
Question 2 (18 marks)
Colin Clark Pty Ltd has an accounting financial year which ends on 31 December. The company purchased an equipment on 30 June 2019 for $ 216,000 cash which is expected to produce 15,000 cups during its useful life of three years. The company has a schedule of producing 6,000, 4,000, and 5000 cups each year since its acquisition. The residual value of the equipment is expected to be $ 27,000 after the useful life.
Required:
(A) Prepare the journal entry to record the purchase of equipment on 30 June 2019.
(B) Assuming straight-line method, calculate the depreciation rate and depreciation expenses for the financial year 2019 and 2020, respectively.
(C) Assuming diminishing-balance method, calculate the depreciation rate and depreciation expenses for the financial year 2019 and 2020, respectively.
(D) Assuming units of production method, calculate the depreciation expenses for the financial year 2019 and 2020, respectively.
(E) Assuming diminishing-balance method, prepare the adjusting journal entry to record depreciation expense for the financial year 2019.
(F) On 31 December 2020, Colin Clark Pty Ltd sells the equipment on cash for $ 98,000. Assuming diminishing-balance method, prepare the journal entry to record the disposal of asset.
Note:
i. If you believe no journal entry is required, explain the reason(s).
ii. Ignore the effect of GST.
iii. Narrations are not required for journal entries.
iv. Colin Clark Pty Ltd’s chart of accounts includes these accounts - Cash, Inventory, Equipment, Accumulated depreciation, Accounts payable, Salaries payable, Sales Revenue, Gain on sale, Loss on sale, Depreciation expense, and Salaries expense.
Question 3 (11 marks)
The Blue Company Ltd has the following selected accounts after posting adjusting entries:
Accounts payable $ 64,000
Notes payable, 6-month $ 70,000
Accumulated depreciation — equipment $ 42,000
Notes payable, 10-year, 12% $ 30,000
Payroll tax expense $ 15,000
Wages payable $ 18,000
Warranty Provisions $ 38,000
Interest payable $ 17,000
Mortgage payable $ 200,000
Goods and services tax (GST) payable $ 22,000
Required:
(A) Prepare the current liability section of the Blue Company's statement of financial position, assuming $25,000 of the mortgage is payable next year, and interest payable is due within 12 months. The company also expects that $2,500 of warranty to be claimed in the coming year.
(B) Discuss about the Blue Company’s liquidity, assuming total current assets are $350,000.
Question 4 (10 marks)
Yellow Pty Ltd prepares quarterly financial statements. The adjusted trial balance on 30 September 2020 is shown below. Using the information provided:
Yellow Pty Ltd
Adjusted trial balance
30 September 2020
No.
Account Name
Dr
Cr
100
Cash
3,800
110
Accounts receivable
3,400
120
Prepaid insurance
2,100
130
Equipment
3,500
131
Accumulated depreciation — Equipment
1,400
200
Accounts payable
3,200
210
Rent revenue received in advance
1,600
300
Share Capital
4,100
310
Retained earnings
1,800
311
Dividends
1,200
400
Rent revenue
6,500
410
Service revenue
2,300
500
Salaries expense
2,800
510
Rent expense
3,000
520
Depreciation expense
650
530
Insurance expense
450
$20,900
$20,900
(A) Prepare for a statement of profit or loss for the quarter ending 30 September 2020.
(B) Prepare for a statement of financial position for quarter ending 30 September 2020.
Question 5 (25 marks)
The financial statements for Rays Ltd for fiscal years 2019 and 2020 are presented below:
Rays Ltd
Statement of financial position
as at 30 June 2020
2020 ($’000)
2019 ($’000)
ASSETS
Current assets
Cash
5,500
3,600
Accounts receivable
2,400
2,000
Allowance for bad debts
-150
-80
Inventory
3,600
3,000
Prepaid insurance
200
100
Total current assets
11,550
8,620
Non-current assets
Land
2,500
3,100
Buildings
3,500
2,670
Accumulated depreciation – buildings
-720
-500
Plant and equipment
5,400
2,900
Accumulated depreciation – plant & equipment
-480
-600
Office equipment
550
340
Accumulated depreciation – office equipment
-200
-150
Patents
160
160
Accumulated amortisation
-60
0
Total non-current assets
10,650
7,920
Total Assets
22,200
16,540
LIABILITIES & EQUITY
Current Liabilities
Accounts payable
2,400
1,900
Accrued expenses
1,350
1,200
Interest payable
350
200
Income tax payable
1,800
1,600
Dividend payable
900
500
Total current liabilities
6,800
5,400
Non-current liabilities
Borrowings
8,000
6,000
Total liabilities
14,800
11,400
Equity
Share capital
3,100
1,900
Revaluation surplus
310
200
Retained earnings
3,990
3,040
Total equity
7,400
5,140
Total liabilities and equity
22,200
16,540
Rays Ltd
Statement of profit or loss
for the year ended 30 June 2020
Additional information:
1. Plant and equipment with an original cost of $800,000 were sold for cash during the year.
2. Land with an original value of $600,000 was revalued upwards by $110,000 during the year.
3. Purchase of buildings, plant & equipment, and office equipment were paid on cash.
4. An interim cash dividend was paid during the year.
Required:
(A) Prepare a statement of cash flows, using the direct method (19 marks).
(B) Reconcile profit to cash provided by operating activities (using indirect method) (6 marks).