SWINBURNE UNIVERSITY OF TECHNOLOGY Higher Education Division

Faculty of Business and Enterprise HBC 607 Accounting Information Systems

Examination June 2011. Duration - 3 hours Reading time 15 minutes

Answer your questions in the Answer Booklet provided.

STUDENT NAME: IDENTIFICATION NUMBER: STUDENTS SIGNATURE:

Question Number

Possible Mark

Actual Mark

1 2 3 4 5 6 Total

15 17 12 20 18 18

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QUESTION ONE Vital Vittals (VV) is a small food transport business supplying kitchen equipment to restaurants in Melbourne. VV practises accrual accounting and has a financial year that ends each 30 June. The business has the following transactions relating to one of its delivery vans:

2007 1 April Purchased a new delivery van from Foodies Vans, a manufacturer in Hobart. The delivery van had a recommended retail price of $58,300, plus 10% GST. After careful negotiation, it was purchased for $60,500 (GST inclusive), on credit terms of 5% 15 days, net 30 days. In addition, VV paid cash for Freight of the delivery van - $2750 (GST inclusive). At the end of its expected five-year useful life it was estimated that the delivery van could be sold for $3750. The straight line depreciation method is to be applied to the delivery van.

2009 1 July

The delivery van was revalued to $25000 to reflect its fair value.

There was no change in its residual value or estimated useful life.

2011 30 June

The delivery van was sold for $11,500.

REQUIRED: (a) Record the purchase of the delivery van in a General Journal entry on 1 April 2007.

(b) Using generally accepted accounting principles, justify your treatment of the Freight charge cost for the delivery van on 1 April 2007.

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(c)

Assuming the Freight charge on 1 April 2007 was capitalised, calculate the Carrying Amount for the Delivery Van in the Balance Sheet as at the following dates; i) 30 June 2007 ii) 30 June 2010

(d) Record the Revaluation entry for the delivery van in the General Journal on 1 July 2009. Assume VVs did not have an Asset Revaluation Reserve on that date before the revaluation of the delivery van. (e) Calculate the revaluation increment or decrement for the sale of the delivery van on 30 June 2011. Explain how revaluation increments and revaluation decrements are reported in financial statements. (2 + 2 + 3 + 4 + 2 + 2 = 15 marks) QUESTION TWO (Ignore GST) Sonchan Pty Ltd (SPL) is a business located in Melbourne selling hi-tech electronic circuits for computers. The details below relate to the credit sales and purchases of one of its circuits, the HWB 994, for June 2011. The unit selling price for HWB994 during June remained constant at $35.00 until 25 June 2011, when it was raised to $38.00.

(f)

Date (2011) Jun 1

Details

Delivery Terms

Delivery Status as at 30 June 2011

Units 50 70 60 40 60 100 50 70

Cost Per Unit $19.00 $20.00 $21.00

Balance (The $19.00 units were purchased on May 10, and the $20 units were purchased on May 30). Purchase Sales Purchase Sales Purchase Sales ExW DDP DDP ExW DDP ExW Received at SPLs warehouse Received by customer Received at SPLs warehouse Received by customer In transit at New Zealand Port In transit to New Zealand customer

Jun 4 Jun 6 Jun 10 Jun 15 Jun 28 Jun 30

$21.50

$22.00

NOTE: The Inventory purchased on 28 June was received at the SPL warehouse on 9 July 2011. Page 3 of 9

REQUIRED: (a) Using the periodic inventory method, calculate the value of SPLs Inventory on hand at 30 June 2011, using the weighted average inventory valuation method.

(b) Using the periodic inventory method, calculate the value of SPLs Cost of Goods Sold for June 2011 using the FIFO method of inventory valuation. (c) Using the perpetual inventory method, calculate SPLs Cost of Goods Sold for June 2011 using the moving weighted average inventory valuation method.

(d) Suppose SPL uses the perpetual inventory method of recording inventory and values its inventory using FIFO, calculate its Gross Profit from the sale of HWB994 for June 2011. (e) Assuming the perpetual inventory recording method and FIFO valuation, due to a drop in demand for SPLs products, the expected unit selling price of HWB994 was lowered to $25.00 on 30 June 2011. What is the generally accepted accounting principle applied by SPL when it values its inventory for reporting in the Balance Sheet as at 30 June 2011? (f) Ignoring the inventory write down in (e) above, and considering a perpetual inventory recording method with the application of FIFO inventory valuation, record the general Journal entry on 5 July 2011 for a sales return of 5 units from the June 30 sale. (3 + 3 + 3 + 3 + 1 + 4 = 17 marks) QUESTION THREE You are the bookkeeper of the Fun Times Toys and Games Shop. One of your duties is to reconcile the cash records of the business with the relevant bank statement. You have collected the following information that will be of use in carrying out this process for the month of July 2010: Cheques drawn for $661.00 and recorded in the cash payments journal during July 2010 have not yet been presented to the bank for payment. Bank charges of $11.00 appear in the bank statement and have been deducted from the final balance of the bank statement. Page 4 of 9

Interest on investments of $151.00 has been recorded in the credit column of the bank statement. No entry has been made in the cash journals of the business. Receipts from various customers and cash sales amounting to $901.00 have been entered into the business accounting records but do not appear on the bank statement. A customers cheque has been returned unpaid by their bank and the amount of $331.00 shows as an adjustment on the bank statement. No entry has been made for this item in the cash records of our business. The unpresented cheques on 30 June 2010, totalling $240.30, were all presented for payment and recorded on the July bank statement, except for a cheque drawn for $150.00. The deposits not credited on 30 June 2010 of $200.00 appear on the July Bank Statement. The final balance of the bank statement on 30 June 2010 was $5,480.70. The cash receipts and cash payments of the business for the month of July 2010, already recorded, were $7,339.90 and $5,771.19 respectively. The final balance of the bank statement on 31 July 2010 was $6,728.11 credit. REQUIRED: (a) Prepare the Bank Reconciliation Statement for July 2010. (b) Why should a business carry out regular bank reconciliations? (c) Describe 2 (two) other forms of internal control that are used for the control of cash? (7 + 1 + 4 = 12 marks)

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QUESTION FOUR Edwards Electrical & Repair Services (EERS) sells small electrical appliances and provides some repair services. Following is the post closing trial balance as at 30 June 2010. EERS uses the Periodic inventory system.

EERS Post-Closing Trial Balance as at 30 June 2011 Account names Debit Credit Cash at Bank 2900 Accounts Receivable 4750 Prepaid Rent 1500 Prepaid Insurance 2000 Office Supplies 860 Furniture and Fittings 6500 Accumulated Depreciation Furniture and Equipment 1200 Building 45000 Accumulated Depreciation building 4500 Accounts Payable 4500 Accrued Salaries 375 Stock (30/6/10) 15000 Unearned revenue 1000 Capital - Edwards 50000 Retained earnings 16935 78510 78510 Transactions completed during the month ending 31st July, 2011 are summarised below: 1) Cash receipts on sale of electrical equipment $8,000 plus GST. 2) Cash receipts on Repair Services $3,500 plus GST. 3) Inventory purchased from Western Electrical for $2,600 Plus GST on credit. Credit terms 1/15, n/45. 4) The owner withdrew $1,000 (Net) worth of electrical equipments for private use. 5) Salary paid during the month $2,900. This payment included Accrued Salaries of $375 for the month of June 2010. 6) Settled the amount owing to Western Electrical on July purchases. This was done within the discount period. 7) Paid electricity expense of $207 plus GST. 8) Paid Accounts Payable of $1,660. Page 6 of 9

9) Credit sales during the month of July were $5,000 plus GST. 10) Cash receipts from customers during the month $4,500. The following additional information should also be considered for the month ending 31st July 2011. 1) Unused office supplies on hand at the end of the month totalled $420. 2) Rent expense for July was $300. 3) Depreciation rates are as follows: Furniture and equipment 10% per year on cost Building 5% per year on cost 4) Salaries incurred but not paid amounted to $540. 5) Unearned revenue earned during the month $750. 6) After a concerted effort to collect an account receivable of $125 (GST included), Edward has decided to write off that amount as bad debt. EERS use the direct writeoff method of accounting for bad debts. 7) According to the physical inventory count on 31st July 2011, the closing inventory was $11,500. REQUIRED: a) b) Prepare the General journal entries to record business transactions for the month of July 2010 (Narrations are not required). Prepare all adjusting entries for the month ending 31st July 2010 (Narrations are not required). (10 + 10 = 20 Marks) QUESTION FIVE (Ignore GST) Quality Crafts uses a job-order costing system. The following information is a summary of its manufacturing accounting records for the month of May 2011.

1. Raw materials purchased on credit $430,000. 2. Raw materials issued to production $250,000 direct and $42,000 indirect. 3. Total factory payroll was $380,000 of which $87,000 was indirect labour. 4. Other overhead cost incurred were: Rates General supplies $55,000 $48,000 Page 7 of 9

Insurance Electricity

$50,000 $66,000

5. Depreciation of manufacturing equipment $48000. 6. Factory overhead is applied at 120% of direct labour cost. 7. Jobs completed and transferred to finished goods at cost $1,115,000. 8. Jobs with a cost of $980,000 were sold for $1, 180,000 on credit.

Inventory balances at May 1st 2011: Raw Materials $64,000 Work in Process (WIP) $50,000 Finished goods $100,000

REQUIRED: a) Reconstruct the following ledger accounts for the month of May. a. Work in Process b. Finished Goods c. Raw Materials b) Calculate the amount and state whether overhead was underapplied or overapplied. c) Outline two possible accounting treatments for underapplied and overapplied overhead. . (12+ 2 + 4 = 18 Marks)

QUESTION SIX Hudsons Agricultural Supplies uses the Income Statement (net credit sales) method for estimating doubtful debts. All transactions below relate to Hudson Agricultural Supplies uncollectable accounts for the financial year ended 30 June 2011. The company is registered for GST. July 10 Sept 18 Wrote off the $650 account of W. Martins as uncollectable. Re-established the account of A. Johns and recorded the collection of $1,980 in full payment of his account, which had been written off previously. Page 8 of 9

Jan 12

Received 60% of the $1,100 balance owed by J. Millers and wrote off the remainder as uncollectable. Wrote off as bad the accounts of Braxton Co. Ltd $1,078, and H. Nooks $1,232. Received 75% of the $3,432 owed by Cameroons Ltd and wrote off the remainder as a bad debt. Estimated bad debts expense for the year to be 1.5% of net credit sales of $650,000 (excluding GST)

Feb. 22 Mar 20

June 30

The Accounts Receivable account had a balance of $179,100 at 30th June 2011. The beginning balance in the Allowance for Doubtful Debts account on 1st July 2010 was $8,250.

REQUIRED: a) Prepare journal entries for each of the above transactions. b) Determine (1) the balance in the allowance for doubtful debts account after the 30 June adjustments, and (2) the expected collectable amount of the accounts receivable as at 30 June. c) Assume that instead of using the Income Statement approach, Hudson Electrical Supplies uses the Balance Sheet approach to account for the allowance for doubtful debts. How is this method different to using the Income Statement approach to accounting for doubtful debts? (12+ 3 + 3 = 18 Marks)

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