Australian

School of Business
ACCT1501 Accounting and Financial Management 1A
Session 1 2013

TUTORIAL WEEK 4 Solutions to Preparation Questions

Preparation Questions:
v Discussion Question 3.2, 3.4; Problems 3.16, 3.18
DQ3.2
A = L + OE
a not possible, as the right hand side of the accounting equation will exceed the left
hand side
b possible, e.g. share capital issued to reduce debt
c not possible, as the left hand side of the accounting equation will exceed the right
hand side
DQ3.4

Expenses decrease profit. A decrease in profit results in a decrease in retained profits.

Retained profits are a category of shareholders equity, therefore, a decrease in expenses,
decreases shareholders equity.

The other parts of the accounting equation likely to be affected will either be an
increase in liabilities (for example an increase in a payable when an expense is incurred) or a
decrease in an asset (for example, when cash is paid out upon occurrence of an expense.
Problem 3.16
1
NCA
2
NCL
3
CA
4
SE
5
CA
6
NCL
7
CL
8
CA
9
NCA
10
CL
11
NCA
12
SE

Dr
Cr
Dr
Cr
Dr
Cr
Cr
Dr
Dr
Cr
Dr
Cr

Problem 3.18

1
2

Transaction
Paid accounts payable
$3,220
Income tax calculated as $5,900; $5,000 paid
now and $900 payable later

Customers paid $350 as deposits on future

purchases

$600 paid to auditors, and $2,400 still owing

5
6

Equipment acquired for an agreed price of

$5,200 in return for shares
Goods costing $2,750 sold for $4,500. $1,200
sales were for cash and $3,300 were on credit

Journal entry
DR Accounts payable
CR Cash
3,220
DR Income tax expense
5,900
CR Cash
5,000
CR Income tax payable
DR Cash
CR Customer deposits liability
350
DR Auditing Expense
3,000
CR Accounts payable
CR Cash
600
DR Equipment
5,200
CR Share capital
DR Cost of goods sold
2,750
CR Inventory
DR Cash
DR Accounts receivable
3,300
CR Sales
4,500

3,220

900
350

2,400

5,200
2,750
1,200