THE HONG KONG POLYTECHNIC UNIVERSITY

HONG KONG COMMUNITY COLLEGE

Subject Title : Financial Accounting Subject Code : CCN2101

Session : Semester Two, 2016/17

Numerical Answers

Question B1

Part I
Amount, account titles and Dr/Cr entries have to be correct, no half mark is to be given.
Dr Cr

(1) Office supplies expense ($13,800 - $7,000) 6,800

Office supplies 6,800

(2) Salaries expense 225,000

Salaries payable 225,000

(3) Unearned revenue 50,000

Service revenue 50,000

(4) Insurance expense ($27,000/3) 9,000

Prepaid insurance 9,000

(5) Cash ($38 x 1,200) 45,600

Treasury shares 24,000
Share premium: treasury shares 21,600

(6) Income tax payable ($157,000 - $140,000) 17,000

Income tax expense 17,000

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Part II

Logan Company
Income Statement
For the year ended 31 March 2017
$ $
Sales revenue 800,000
Less: Sales discount 2,000
Net Sales 798,000
Less: Cost of goods sold 300,000
Gross Profit 498,000
Less:
Rent expense 120,000
Depreciation expense: Equipment 56,000
Administrative expense 260,000
436,000
Profit before taxes 62,000
Less: Income taxes expense 50,000
Profit after taxes 12,000

Question B2

CC Lemon Company
Statement of Cash Flows
For the Year Ended 31 December 2016
Cash flows from operating activities
(Indirect method)
Profit $200,000
Add: Depreciation & Amortization expense $ 100,000
Decrease in prepaid expenses 15,000
Increase in accounts payable 12,000
_127,000
$327,000
Less: Non-operating gain $ 10,000
Increase in accounts receivable 30,000
Increase in inventory 20,000
Decrease in accrued expenses payable __2,000 (62,000)
Net cash from operating activities 265,000

Cash flows from investing activities:

Purchases of production equipment (100,000)
Proceeds from sales of production equipment 15,000
Net cash used in investing activities: (85,000)

Cash flows from financing activities:

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 Repaid of bank loan to bank (30,000)
Borrow bank loan from bank 50,000
Purchase of treasury shares (80,000)
Dividends paid (12,000)
Net cash used in financing activities (72,000)

Net increase (decrease) in cash and cash equivalents 108,000

Cash and cash equivalents, beginning of year 60,000
Cash and cash equivalents, end of year $ 168,000
Question C1

Part I

Date Journal
June
1 Inventory 100,000
Accounts Payable (Lorac Corp.) 100,000

3 Accounts Payable (Lorac Corp.) 25,000

Inventory 25,000

9 Accounts Receivable (Morris Realty) 35,000

Sales 35,000

Cost of Goods Sold 25,000

Inventory 25,000

13 Accounts Payable (Lorac Corp.) 75,000

Cash 75,000

18 Cash 33,250
Sales Discounts 1,750
Accounts Receivable (Morris Realty) 35,000

30 Cost of Good Sold 550

Inventory 550

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Question C2

Part I

(a) Lucus Cake Shop

Cash account balance
Additions:
Interest credited by
bank
Bank reconciliation
31 December 2016
$ $
8,600 Bank statement balance 8,350
Additions:
90 Deposits in transit 1,335

Deductions: Deductions:
Book error (270) Outstanding checks (1,060)
NSF check (535) Bank error (740)
Correct cash balance 7,885 Correct cash balance 7,885

(b) Equipment 270

Accounts receivable .................................................... 535
Interest Revenue ......................................................... …90
Cash…………………………………………………... 715
(or two separate entries of Dr. cash $90 and Cr. Cash $805)

Part II

(a) Impairment loss of receivable………….……….…200

Allowance for impairment……………………...….200

(b) $395,000 x 80% x 1% = $3,160

(c) Allowance for Impairment…………………………650

Accounts Receivable ……………………………… 650

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Question C3

Part I
2015 2016
150%-declining-balance
Year 1: ($900,000 x 15% x 1/2) $67,500 $124,875
Year 2: [($900,000 - $67,500) x 15%]

Straight-line
Year 1: [($900,000 - $100,000) x 1/10 x 9/12]
Year 2: ($900,000 - $100,000) x 1/10 $60,000 $80,000

Units-of-output
Year 1: [($900,000- $100,000) x 8k/100k] $64,000 $96,000
Year 2: [($900,000- $100,000) x 12k/100k]

Part II

Depreciation expense $30,000

Accumulated depreciation $30,000
($375,000-75,000)*1/5*1/2

Cash 240,000
Accumulated Depreciation 120,000
($60,000 x 2)
Loss on Disposal 15,000
Machinery 375,000
Question C4

(a)(i) Earnings per share

= $130m  (220m/2) = $1.18

(a)(ii) Current ratio

= $(188+267+248+59)m ÷ $(122+59)m = 4.21

(a)(iii) Inventory turnover

= $325m ÷ ($248m + $234m) / 2 = 1.35

(a)(iv) Times interest earned

= $239m ÷ $66m = 3.62

(a)(v) Debt ratio

= $(122+59+291)m ÷ $1,096m = 43.07%

(a)(vi) Dividend yield

= ($78m / 110m)  $20 = 3.55%

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(a)(vii) Return on assets
= $239m ÷ $(1,096+1,025)m / 2 = 22.54%

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