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HI5001Accounting for Business Decisions Online Supplementary Assessment Trimester 1, 2020

 

 

 

 

 

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HI5001Accounting for Business Decisions
Online Supplementary Assessment

Trimester 1, 2020

 

 

Instructions:

This assessment consists of TWO (2) parts. All questions are compulsory.

All questions must be answered by using the answer boxes provided in this paper.

 

 

 

Assessment Weight:

This assessment accounts for 50 total marks.

Part A                                      10 marks

Part B                                      40 marks

Question 1                                         10 marks

Question 2                                         10 marks

Question 3                                         10 marks

Question 4                                         5 marks

Question 5                                         5 marks

Total                                        50 marks

 

 

PART A - Multiple Choice Questions:                                                                                         (10 marks)

Select the one alternative in each question that best completes the statement or answers the question and enter your responses in the table below which will appear in red:

 

                Question

1

2

3

4

5

6

7

8

9

10

Answer

A

C

B

A

B

B

A

A

D

B

 

  1. Accumulated Depreciation is:
  1. A contra-asset account
  2. A liability account
  3. An expense account
  4. Both A and B

 

  1. Which of these is NOT included as a separate item in the basic accounting equation?
  1. Assets
  2. Liabilities
  3. Expenses
  4. Shareholder’s Equity

 

  1. Liabilities accounts have what type of normal balance?
  1. Debit
  2. Credit
  3. Contra
  4. All of the above

 

  1. Which account is a liability account?
  1. Unearned Revenue
  2. GST Outlays
  3. Accumulated Depreciation
  4. Prepaid Expenses

 

  1. Which of the following entries are made at the end of a period to shift the balances in temporary accounts to permanent accounts?
  1. Journal entries
  2. Closing entries
  3. Adjusting entries
  4. Reversing entries

 

  1. Once recorded, journal entries can be posted to:
  1. General Journal.
  2. Ledger accounts.
  3. Income Statement.
  4. Balance Sheet.

 

  1. Which of the following is a cash activity listed on the cash flow statement?
  1. Purchasing activities
  2. Forecasting activities
  3. Operating activities
  4. Budgeting activities

 

  1. Which of the following ratios explains how efficiently companies manage their stocks for sales?
  1. Inventory turnover ratio
  2. Receivable turnover ratio
  3. Asset turnover ratios
  4. Revenue asset ratio

 

  1. Which of the following is a contra-equity account?
  1. Depreciation
  2. Expense
  3. Current Liabilities
  4. Drawings

 

  1. The assets that can be converted to cash within a period of time less than 1 years are called:
  1. Non-current assets.
  2. Current assets.
  3. Intangible assets.
  4. Fixed assets.

 

 

 

Part B – Computational Questions                                                                                                           (40 marks)

Answer all the five (5) questions below. You are required to write your answers in the exam booklet.

 

Question 1          (10 marks)

The following transactions, relating to the business of Great Wheels Transportation Ltd, occurred during May and June 2019.

 

May 1

Delivered 4 shipments on credit, $15,600

May 3

Bought new vehicles $60,000, paid cash 25,000, the balance will be paid within 30 days

May 5

Paid $4,500 to a mechanic for the repair done last month

May 15

Paid salary $5,500, paid rent for workshop for the next 3 months $7,500

May 20

Received prepayment of $17,800 from a client for delivery of a shipment to be provided in June 2019

May 23

Owner transferred $20,000 cash to business account

June 15

Paid the balance of vehicle, paid salary $5,500

June 29

Received $7,000 from a client to reduce their account balances

June 30

Shipment booked by the client in 20 May was delivered. Recorded 1.5 month rent expense.

 

Prepare the journal entries to record each transaction and prepare any necessary adjusting entries as at 30 June, the end of the financial year. Ignore GST.

 

ANSWER:  ** Answer box will enlarge as you type

 

Journal Entries in the books of Great Wheels Transportation Ltd

Date

Particulars

Debit

Credit

2019

 

 

 

 

 

 

 

May-01

Accounts Receivables

 $      15,600.00

 

 

Sales revenue

 

 $      15,600.00

 

(Being sales made on credit-4shipments delivered)

 

 

 

 

 

 

May-03

Vehicle

 $      60,000.00

 

 

Cash

 

 $      25,000.00

 

Account Payable

 

 $      35,000.00

 

(Vehicle purchased partially through cash and partially through on credit)

 

 

 

 

 

 

May-05

Account Payable

 $         4,500.00

 

 

Cash

 

 $         4,500.00

 

(Cash paid to mechanic for the work done last month)

 

 

 

 

 

 

May-15

Salary Expenses

 $         5,500.00

 

 

Prepaid Rent

 $         7,500.00

 

 

Cash

 

 $      13,000.00

 

(Salary expense of $5500 has been paid and prepaid rent expenses of $7500 for three months has been paid)

 

 

 

 

 

 

May-20

Cash

 $      17,800.00

 

 

Unearned sales revenue

 

 $      17,800.00

 

(Cash received for the sales to be provided in next month)

 

 

 

 

 

 

May-23

Cash

 $      20,000.00

 

 

Owner’s Capital

 

 $      20,000.00

 

(Owner invested $20000 in business)

 

 

 

 

 

 

Jun-15

Account payable

 $      35,000.00

 

 

Salary expenses

 $         5,500.00

 

 

Cash

 

 $      40,500.00

 

(Balance paid for vehicle purchase and $5500 paid to employees)

 

 

 

 

 

 

Jun-29

Cash

 $         7,000.00

 

 

Account Receivables

 

 $         7,000.00

 

(Client paid $7000 for the balance outstanding)

 

 

 

 

 

 

Jun-30

Unearned sales revenue

 $      17,800.00

 

 

Sales Revenue

 

 $      17,800.00

 

(Sales revenue recognised)

 

 

 

 

 

 

 

 

 

 

Adjusting Journal Entries in the books of Great Wheels Transportation Ltd

Date

Particulars

Debit

Credit

 

 

 

 

Jun-30

Rent Expenses

 $         3,750.00

 

 

Prepaid rent expenses

 

 $         3,750.00

 

(Rent expenses has been recorded for 1.5 months)

 

 

 

 

Question 2          (10 marks)

The following information relates to the inventory of a small appliance in the records of Power Ltd during the month of June 20XX. Ignore GST.

 

Date

Transaction

No. of units

Unit cost

Unit price

Total cost/Sales

June 1

Beginning balance

700

$7

 

$4,900

June 13

Sold

600

 

$12

$7,200

June 15

Bought

1,000

$7.5

 

$7,500

June 20

Sold on credit

950

 

$13

$12,350

June 25

Bought

800

$6.5

 

$5,200

June 28

Sold

800

 

$12.5

$10,000

 

Required:

  1. Assuming a perpetual inventory system is employed, develop the inventory card and determine the COGS and ending inventory using FIFO method. (8 marks)

ANSWER: 

 

Date

Particulars

Purchase

Cost of goods sold

Balance

 

 

Units

P/U

Total

Units

P/U

Total

Units

P/U

Total

Jun-01

Opening Bal

 

 

 

 

 

 

700

7

4900

 

 

 

 

 

 

 

 

 

 

 

Jun-13

Sales

 

 

 

600

7

4200

100

7

700

 

 

 

 

 

 

 

 

 

 

 

Jun-15

Purchases

1000

7.5

7500

 

 

 

100

7

700

 

 

 

 

 

 

 

 

1000

7.5

7500

 

 

 

 

 

 

 

 

 

 

 

Jun-20

Sales

 

 

 

100

7

700

150

7.5

1125

 

 

 

 

 

850

7.5

6375

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jun-25

Purchases

800

6.5

5200

 

 

 

150

7.5

1125

 

 

 

 

 

 

 

 

800

6.5

5200

 

 

 

 

 

 

 

 

 

 

 

Jun-28

Sales

 

 

 

150

7.5

1125

150

6.5

975

 

 

 

 

 

650

6.5

4225

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchases

1800

 

12700

 

 

 

 

 

 

 

COGS

 

 

 

2350

 

16625

 

 

 

 

Closing Bal

 

 

 

 

 

 

150

6.5

975

 

 

  1. Record the journal entry for the sales on 20 June, assuming perpetual inventory system, FIFO method.(2 marks)

ANSWER: 

 

Journal Entries in the books of Power Ltd

Date

Particulars

Debit

Credit

20XX

 

 

 

 

 

 

 

Jun-20

Account receivables

 $      12,350.00

 

 

Sales Revenue

 

 $      12,350.00

 

(Good sold on credit)

 

 

 

 

 

 

 

Cost of goods sold

 $         7,075.00

 

 

Inventory

 

 $         7,075.00

 

(Being goods sold and inventory used)

 

 

 

 

Question 3(10 marks)

On 1 July 2019, BCF Instrument Ltd purchased new machinery with a list price of $250,000. Freight inward of $6,700 and installation costs of $4,300 were also paid. The machine has a useful life of 5 years and a residual value at the end of its useful life of $15,000. Ignore GST.

 

Required:

  1. Determine the initial acquisition cost of the machinery. (1 mark)

ANSWER:

Calculation of Initial acquisition cost of the machinery

Particulars

Amount

List price of machine

 $  250,000.00

Add: Freight inward

 $      6,700.00

Add: Installation cost

 $      4,300.00

Initial acquisition cost

 $  261,000.00

  1. Determine the amount of depreciation expense for each year assuming use of (7 marks)
  1. The straight-line depreciation method

ANSWER:

Formula = (Initial Cost-Residual value)/ Number of years of useful life

Depreciation each year = ($261000-$15000)/5 = $49200

 

 

 

  1. The diminishing balance method of depreciation (use depreciation rate of 40%)

ANSWER:

Calculation of depreciation for each year using diminishing balance method

Year

Opening Balance

Depreciation

Closing Balance

2020

 $             261,000.00

 $      104,400.00

 $                             156,600.00

2021

 $             156,600.00

 $         62,640.00

 $                                93,960.00

2022

 $               93,960.00

 $         37,584.00

 $                                56,376.00

2023

 $               56,376.00

 $         22,550.40

 $                                33,825.60

2024

 $               33,825.60

 $         18,825.60

 $                                15,000.00

 

  1. Unit of production method assuming that the machine can work 20,000 hours in its useful life and the operating hours of this machine is 4,500 in the first and second year, 4,000 hours for third and fourth years, 3,000 hours for the last year

ANSWER:

Calculation of depreciation for each year using Unit of production method

Year

Units used in year

Depreciation Calculation

Depreciation for each year

2020

4500

(4500/20000) * (261000-15000)

$55,350.00

2021

4500

(4500/20000) * (261000-15000)

$55,350.00

2022

4000

(4000/20000) * (261000-15000)

$49,200.00

2023

4000

(4000/20000) * (261000-15000)

$49,200.00

2024

3000

(3000/20000) * (261000-15000)

$36,900.00

 

  1. Prepare a journal entry to record depreciation expense for the third year under the diminishing balance method. (2 marks)

ANSWER:

Depreciation expense (Machinery)                    $37584

    Accumalated Depreciation on Machinery                              $37584

 

 

 

 

Question 4 (5 marks)

Smart Retails Ltd received a 90 day, 12% a bill dated 10 June 2018 from a client to settle an account receivable of $65,000. The company held the bill until 20 July 2018, and then it was discounted at a bank at discount rate of 14%.

 

Required:

  1. Calculate the maturity value of the bill and the proceeds the company got from the bank.(2.5 marks)

ANSWER:

Maturity value of bill = $65000+ ($65000*12%*90/360) = $66,923.29

 

Discounting of bill by bank

Bill value = $65000

Discount rate = 14%

Discount = $65000 *14% * 50 days /365 days = $1,246.58

Amount received from bank = $65000-$1246.58 = $63,753.42

 

 

Please note: It was assumed that 365 days in a year

 

 

  1. Make the journal entry to record discounting the bill at the bank on 20 July 2018.(2.5 marks)

ANSWER:

Cash at bank account                            $63753.42

Discount on bill Account                      $1246.58

       Bill Receivables                                                 $65000

 

Question 5 (5 marks)

The following information is available by comparing the records of the Deli Baker Ltd’s cash at bank account balance with their most recent bank statement as of 30 June 2019:

 

  • Debit balance as per cash at bank account in ledger as at 30 June, $17,709
  • Credit balance as per bank statement as at 30 June, $18,745 
  • Deposits not reflected on bank statement, $5,525
  • Cheques issued by the companies, unpresented at 30 June, $6,715
  • Error by bank – Delicious Baker’s cheque payment charged to Deli Baker’s account, $618
  • Interest paid by bank, $425
  • Cheque for electricity for $678 incorrectly recorded as $867 by the company
  • Service charge on bank statement, $150

 

Required:

Prepare a bank reconciliation statement as at 30 June 2019.

 

ANSWER:

Calculation of adjusted debit balance of Cash at Bank Account as at 30 June

Particulars

Amount

Balance as per ledger

 $  17,709.00

Add: Interest paid by bank

 $        425.00

Less: bank charges

 $     (150.00)

Add: Adjustment of error ($867-$678)

 $        189.00

Adjusted Debit balance of Cash at bank account

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