Foc THE UNIVERSITY OF THE SOUTH PACIFIC DEPARTMENT OF ACCOUNTING AND FINANCIAL MANAGEMEN’ Mid Semester Test for AFIO1: Introduction to Accounting and Financial Management. Part I Semester 1, 1999 Time allowed: 2 hours and 10 minutes reading time Mark Values: Section A Multiple Choice 15 marks Section B_ Theoretical Questions 15 marks. SectionC Problems 70 marks Total — loo Marks, Answer all Questions Silent non-programmable calculators allowed but not provided Answer multiple choice questions on the answer sheet provided Attach the multiple choice answer sheet and worksheet to your answer bookletSection A Multiple Choice Questions Which of the following sets of characteristics defines a legal entity mone> an entity where users are interested in accounting information enterprise in which all assets and debts belong to one individual entity whose directors are appointed by shareholders an entity which may contract debts and sue and be sued by others, None of the above General purpose financial reports prepared for users external to the firm typically include all of the following items except for a moap> Balance sheet Statement of sources and applications of funds Profit and loss statement Bank reconciliation statement Statement of owner's equity ‘The balance sheet provides information about: > moow The resources which an entity has acquired, including information about where the resources came from How the resources of an entity change during a period of time The functioning of the accounting system ‘The profitability of the operations of a firm The total amount of cash the entity took in during the period On 2 January 19X2,Fife Corp. sells a car to O'Brien who agrees to pay for it within 60 days. On a balance sheet for Fife Corp. at 2 January, 19X2, this event should be reported as: A. An account payable B. _Anaccount receivable C. customer advance payment D. Delivered but unsold inventory E, RevenueWhich one of the following statements is true? A. The profit and loss statement reports the results of the earning, activities of an entity for a specific period of time B. The profit and loss statement shows the financial position of an entity at a specific period of time C. The balance sheet shows the earning activities of an entity for a specific period D. The balance sheet shows the financial position of an entity for a specific period of time FE, None of the above, ie. all statements are untrue Which of the following equations is incorrect? A. Assets = Liabilities + Owner's Equity B. Owner's Equity ~ Assets - Liabilities C. Net Profit= Revenue - Expenses D. Owner's Equity at beginning + Drawings - Profit = Owner's Equity at end F, None of the above During the year the assets of a company decreased by $5,345 and the liabilities decreased by $10,678. Consequently the owners equity must have: ‘A. increased by $16,023 B. decreased by $5,333 C. increased by $5,333 D. decreased by $16,023 F, None of the above Which of the following assumptions is the basis upon which personal assets of the owner of the business are excluded from the balance sheet? A. Going concern B. Accounting entity C. Objectivity D. Period E Cost10, ul Which of the following events would be given accounting recognition? A. Hiring an employee B. Signing a contract to purchase an asset in the future C. Receiving an order from a customer D. Arranging a bank overdraft E. None of the above Which of the following is incorrect? A. Acchart of accounts is essential in computerised systems B. A chart of accounts is a listing of the complete account titles and their related numbers C. When analysing transactions, one refers to the chart of accounts to identify specific accounts to be increased or decreased D. A flexible numbering system is preferred in a chart of accounts E, None of the above, ie. all are correct Which of the following may be the cause of an inequality between the sum of the debit and credit columns in a trial balance? Omitting to post both sides of a journal entry Posting an amount to the correct side of an incorrect account Posting an amount to the incorrect side of the correct. account Posting the same incorrect amount to both sides of the correct accounts Both A and C ovpnm> Which one of the following events would result in revenue being, recognized under the cash basis method of measuring net profit? ‘$7,000 of merchandise is sold on credit A bank loan of $10,000 is received from a bank We pay $12,000 to buy ownership in another entity $4,000 is collected from our customers for goods they purchased from us last year None of the above com> m Rent collected from a tenant in advance is considered: A. Unearned revenue B. Accrued Revenue CA liability D. Both A and C E. All of the aboveWhich one of the following accounts should be closed to Profit and Loss ‘Summary at the end of the financial period? A. Insurance Expense B. Prepaid Insurance C. Interest Receivable D. Revenue Received in Advance E. Accumulated Depreciation After the books have been closed which of the following have balances? Asset and revenue accounts Liability and expense accounts Capital and drawings accounts Asset, liability, and owner's equity accounts Revenue and expense accounts moom> (Total 15 marks) Section B Discussion Questions 16. 17. 18, In no more than a paragraph state what is the purpose of making balance-day adjustments? Your answer should relate balance sheet adjustments to the goals of accrual accounting, (Smarks) What are reversing entries? If reversals are made, which entries would normally be reversed? Giver examples to help explain your answer (Smarks) Define the term revenue and indicate how it affects owners equity? (Smarks) (Total 15 marks)Section C: Problems Question 19 Marie Townley owns United Employment Agency. Her accountant prepared the unadjusted trial balance on 30 June [9X UNITED EMPLOYMENT AG ENCY Unadjusted Trial Balance as at 30 June 19X1 Cash at Bank 2035 | Accounts Receivable 6 540 | Prepaid Advertising 940 | Office Supplies Inventory 305 Office Equipment 7790 Ace. Depr. - Office Equip. 1140 ‘Accounts Payable 5.835 Unearned Fees 1290 M. Townley Capital 4635 M. Townley Drawings 11830 Placement Fees Revenue 44790 Rent Expense 5.440 Salaries Expense| 21 750 Telephone Expense 1.060 EEE 37.690 37.690 The following additional information is also available at the end of June: 1 Advertising costing $630 expired during the year. 2 Unused supplies on hand on 30 June totalled $85 3. Estimated depreciation on the office equipment is $1035 4. The Unearned Fees account includes $155 received for fees eamed during June. Required A. Prepare a 10-column worksheet for the year ended 30 June 19X1 2omarks) B. Prepare a profit and loss statement, a statement of owner's equity and a balance sheet (lomarks) C. Journalise the closing entries. (lomarks)Question 20 One 30 June 19X0 P. Prasad Limited received the monthly bank statement of its account from ANZ bank. The statement showed a credit balance of $8450.45, The balance as per cash at bank at 31st May was $9732.45, (02. ‘The June bank column totals of the cash receipts and cash payment journals are, respectively, $10773 and $12054 before taking into account any of the items appearing on the bank statement. The following item appear on the June bank statement but not in the cash journals for the same month: - Rent of $200 from a tenant of P. Prasad Limited was deposited directly - Cheque book $ 12, Bank charges $35, Government Tax $ 63 - Adishonored cheque (received from D. Dass) for $147 > Adeposit of $200 by P Prasad to his personal bank account held at the same bank ~ Regular loan repayment of $300 to credit corporation made by the bank The following items appear in the cash journals but not on the bank statement. - A deposit on 27" of June of $860. - Cheque no. 184 for $316, no, 189 for $243 and no.193 for $171. - _ Apost-dated cheque no. 185 for $500 was given to AA products. Additional information - Cheque no. 192 was entered correctly as $180 in the cash journal but appeared in the bank statement as $280 - Cheque no. 181 for $114 appeared twice on the bank statement Required A. Prepare the cash at bank account in the general ledger of P. Prasad for June 19X0. (20 marks) B. Prepare the Bank reconciliation statement of P. Prasad at 30" June 19X0. (1Smarks) C. Explain why it is necessary to regularly reconcile the cash at bank with the bank statement. (Smarks) THE END 6AF203 Final examination 7 1998 Question seven _ Accounting for associates Price Ltd holds a 25% interest in Els Ltd. During the year ended 31/12/20x3, Price Ltd acquired $75,000 of inventory from Els Ltd. The inventory had cost Els Lid $50,000. One half of this inventory was on hand at year-end. Assume a tax rate of 33%. Required: Prepare the equity accounting entries to account for the unrealised profit in inventory sold to Price Ltd by Els Ltd [7.5.marks} Question eight A. — Capital reorganisation The shareholders’ equity of Nicklaus Ltd as at 31/12/20x2 is as follows: ‘Authorised Capital 10,000,000 ordinary shares 20,000,000 Tssued and paid-up capital 4,000,000 $2 ordinary shares fully paid 8,000,000 The directors proposed the following capital reorganisation: a) cancel 2,000,000 unissued shares; and b) subdivide 4,000,000 $2 ordinary shares into 8,000,000 $1 shares. Required: Prepare the necessary accounting action and the shareholders’ equity of the company after the above has been implemented. 17.5 marks} OR B. Consolidation For each of the following inter-entity transactions, assume that the consolidation. process is being undertaken at 31/12/x4, and that the income tax rate of 40% applies. Prepare the consolidation worksheet adjustment entries for these transactions. All parts are independent unless specified, P Ltd owns all the share capital of S Ltd A. On I/7/x4 P Ltd sold an item of plant to S Ltd for $2,000, Immediately before the sale, P Ltd had the item of plant on the accounts for $3,000. P Ltd depreciated items at 10% per annum on the reducing balance and § Ltd used the straight line method over 5 years [2.5 marks} B. PLTD sold a non-current asset with a carrying amount of $2,000 to $ Ltd for $1,600 on 1/7/x4. $ Ltd intended to use this item as inventory, being a seller of second hand goods, Both entities charged depreciation at the rate of 10% per annum on reducing balance, The item was still on hand at S124, [2.5 marks} C. On 1/1119x4 § Ltd sold inventory costing $400 to P Ltd on credit. On 31/12/x4, only half of these goods had been sold by P Ltd, But P Ltd had paid $600 back to $ Ltd [2.5 marks}