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ACCT1501 Practice Exam Questions & Solutions

QUESTION 1 (6 Marks)

2015S1

Bank Reconciliation

The following information is given about Nadak Co.:


1. The August 31 balance shown on the bank statement is $9,810.
2. There is a deposit in transit of $1,260 at August 31.
3. Outstanding cheques at August 31 totalled $1,890.
4. A bank charge of $40 for cheques was made to the account during August, as
shown on the bank statement. Although the company was expecting a charge,
its amount was not known until the bank statement arrived.
5. In the process of reviewing the cheques, it was determined that a cheque
issued to a supplier in payment of accounts payable of $361 had been recorded
as $631.
6. The August 31 balance in the general ledger Cash account, before
reconciliation, is $8,950.
Required:
Part A: Prepare a bank reconciliation as of August 31, 2011.

(4 marks)

Balance per bank


Add: Deposits in transit
Less: Outstanding cheques
Adjusted balance

$9,810 CR
1,260
(1,890)
$9,180 CR

(0.5mark)
(0.5mark)
(0.5mark)
(0.5mark)

Balance per accounting records


Less: Bank charge
Add: Cheque recording error
Adjusted balance

$8,950 DR
(40)
270
$9,180 DR

(0.5 mark)
(0.5mark)
(0.5mark)
(0.5 mark)

ACCT1501 Practice Exam Questions & Solutions

2015S1

Part B: Prepare any necessary adjusting journal entries.

(2 marks)
Debit
$

Account name
Bank charges
Cash at Bank

40

Cash at Bank
Accounts payable

270

Credit
$
40

270

1 mark each journal entry


(No mark deduction for a combined adjusting journal
entry.)

ACCT1501 Practice Exam Questions & Solutions

2015S1

QUESTION 2 (9 Marks) Financial Reporting Principles, Accounting Standards


and Auditing, & Sustainability Reporting
Provide short answers to the following:
1. What are generally accepted accounting principles?(2 Marks)

The rules, standards and usual practices that companies are expected to follow in
preparing their financial statements.
2 marks must refer to both of (1) rules/standards (or like term e.g. laws) and (2)
practices and relate to accounting reports or financial statements or financial
accounting
1 mark must refer to one of rules/standards/practices and relate to accounting
reports or financial statements or financial accounting

2. Going concern assumption is one of the key assumptions to financial reports.


What is going concern assumption? Why is assumption important in the
preparation of financial statements? (4 marks)

The going concern assumption relates to the assumption that an entity will continue
in operation for the foreseeable future. (1 Mark)
The assumption underlies the historical cost basis of accounting. The cost of assets is
recovered in the normal course of operations through sale or use. If going concern
does not apply, i.e., when the entity intends or needs to liquidate, financial reports
need to be prepared on the liquidation basis rather than historical cost. (1 mark)
Any example that shows the use of liquidation value instead of historical cost when
an entity intends or needs to liquidate is acceptable. (1 mark)
Students need to explain that due to the limited market for the assets to be sold
during liquidation, the liquidation value is normally a lot less than the historical cost
value. (1 mark)

ACCT1501 Practice Exam Questions & Solutions

2015S1

3. Describe Scope 1 and Scope 2 emissions and provide an example for each of
them. (3 marks)

Scope 1 emissions are all direct emissions,that are all emissions over which a
company has direct control. (1 mark)
For example, an air conditioning unit situated with a building owned and operated by
XYZ Ltd produces Scope 1 emissions. Emissions from a trucked owned and
operated by a logistic company are Scope 1 emissions as the truck is in a direct
control of the company. (Any similar examples that describe direct control of the
source of emissions should be given 1 mark. If the student just mentions an example
and it is acceptable mark.)
Scope 2 emissions are a particular type of indirect emissions, that are emissions over
which a company has only indirect control arising from the generation of purchased
electricity, heat or steam. In other words, the emissions result from the generation of
electricity, heating/cooling, generated off site but transferred to and purchased by the
entity. (Any of the above the explanation is correct. (1 mark))
Emissions from the purchased electricity used to power the factories and offices of
an entity are an example of Scope 2 emissions. (Any similar examples that the
production of energy, including electricity heating/cooling and steam, that is
transferred to, and consumed by, the entity. (1 mark).)
If the student just mentions an example and it is acceptable mark.

ACCT1501 Practice Exam Questions & Solutions

2015S1

QUESTION 3 Financial Statement Analysis (8 marks)


BPS Ltd, a supplier of telecommunications equipment, retails its products through
suburban outlets. Shown below are the calculations of some of its key financial ratios
for 2011 and 2012.
2012
2011
Return on Equity
13%
12%
Return on Assets
8%
9%
Profit margin
20%
18%
Asset turnover
0.40
0.50
Days in inventory
72 days
55 days
Days in debtors
42 days
42 days
Current ratio
1.6
1.5
Quick ratio
0.7
1.1
Debt-to-Equity ratio
1.4
1.0
Return on Equity

Operating Profit after Tax


Shareholders' Equity

Return on Assets

Operating Profit after Tax


Total Assets

Financial Leverage

Total Assets
Total Shareholders Equity

Profit Margin

Earnings Before Interest and Tax


Sales

Asset Turnover

Sales
Total Assets

Days in Inventory

Average Inventory x 365


COGS

Days in Debtors

Average Trade Debtors x 365


Credit Sales

Current Ratio

Current Assets
Current Liabilities

Quick Ratio

Current Assets - Inventory


Current Liabilities
Total Liabilities
Total Shareholders' Equity

Debt to Equity Ratio

ACCT1501 Practice Exam Questions & Solutions

2015S1

Required
Analyse BPSs profitability, asset management, liquidity and financial
structure for 2012 using the ratio information shown above.

Profitability
ROE has increased from 12 per cent to 13 per cent while the return on assets has
fallen from 9 per cent to 8 per cent. Given that ROA = Profit Margin Asset
Turnover (e.g. 20 x 0.4 per cent = 8 per cent for 2012), the fall in ROA is due to the
fall in asset turnover. While the profit margin has increased from 18 per cent to 20
per cent, asset turnover has decreased from 0.50 to 0.40, thus overall ROA has
decreased.
[2 marks fully correct; 1 mark partially correct]
Asset management:
The average time to collect debtors has stayed constant. However, the days in
inventory has increased from 55 days to 72 days, meaning that, on average, it is
taking much longer to sell inventory. These extra days need to be financed by the
company. The reasons for the build up in inventory should be investigated (e.g.
stocking up for some large orders, as opposed to lack of demand, for the product,
require very different actions).
[2 marks fully correct; 1 mark partially correct]
Liquidity:
The current ratio has increased (mainly due to the build up in inventory, see above)
while the quick ratio has dropped below 1 to 0.7 indicating the company may have
problems paying their bills in the short term.
[2 mark fully correct; 1 mark partially correct]
Financial structure:
Debt-to-equity ratio has increased substantially from 1 to 1.4. The ability of the
company to pay its interest bill needs to be considered, particularly given the
decrease in profitability as indicated by the lower ROA.
[2 marks fully correct; 1 mark partially correct]

ACCT1501 Practice Exam Questions & Solutions

QUESTION 4

(15 marks)

2015S1

Control Accounts

Rupert Ltd maintains subsidiary ledgers for debtors and creditors. At 31 May 2014,
the debtors control account has a debit balance of $50,120 and the creditors control
account has a credit balance of $30,670. An extract of totals from the special
journals for the month of June 2014 is as follows:
$
Credit sales
86,500
Cash sales
6,100
Credit purchases
93,200
Cash received from debtors
67,800
Cash paid to creditors
55,890
Cash purchases
4,300
Discount received from
7,500
creditors
Discount allowed to debtors
3,500
Complete the debtors and creditors control accounts as they would appear in the
general ledger.
1.5 MARKS PER ENTRY IN EACH CONTROL ACCOUNT (NO HALF MARKS)

Balance b/d
Sales

Balance b/d

Cash
Discount
revenue
Balance c/d

Debtors control
$
50,120
86,500

Cash
Discount
expense
Balance c/d

136,620
65,320

Creditors control
$
55,890
7,500

65,320
136,620

Balance b/d
Inventory

$
30,670
93,200

Balance b/d

123,870
60,480

60,480
123,870

$
67,800
3,500

ACCT1501 Practice Exam Questions & Solutions

2015S1

This is also acceptable.

Balance b/d
(opening
balance)
Sales
Balance c/d
(closing
balance)

Cash
Discount
revenue

Debtors control
$
50,120
86,500

Cash
Discount
expense

$
67,800
3,500

65,320

Creditors control
$
55,890
7,500

Balance b/d
(opening
balance)
Inventory
Balance c/d
(closing
balance)

$
30,670
93,200
60,480

ACCT1501 Practice Exam Questions & Solutions

2015S1

QUESTION 5 ADJUSTING ENTRIES AND FINANCIAL STATEMENTS (23


Marks)
The following pre-adjusted trial balance has been prepared for Sydney Company as at
30 June 2014 (for the 12 months beginning on 1 July 2013):
DR

CR

Bank Overdraft

10,000

Accounts Receivable

200,000

Allowance for Doubtful Debts

1,000

Inventory

100,000

Prepaid Rent

10,000

Property, Plant and Equipment

450,000

Accumulated Depreciation - PPE

200,000

Accounts Payable

60,000

Bank loan

50,000

Contributed Capital

310,000

Retained Profit at 1 July 2013

34,000

Sales revenue

450,000

Cost of Goods Sold

265,000

Interest Expense

5,000

Wages Expenses

80,000

Rent Expense

5,000
1,115,000

1,115,000

The following information is given which may give rise to year end adjustments:
Depreciation on Property, Plant and Equipment is provided for on a straight line
basis at 10% per annum, and it is assumed that it will have no salvage value.
The balance in Prepaid Rent relates to the 12 month period from 1 January 2014 to
31 December 2014.
An ageing analysis shows that $4,000 of Accounts Receivable is estimated to be
uncollectible.
On 30 June 2014, the directors declared a dividend of $5,000, which the
shareholders authorised. The dividend is to be paid on 15 September 2014.

ACCT1501 Practice Exam Questions & Solutions

2015S1

It is discovered that $10,000 cash received during the year and credited to sales are
actually related to services to be delivered in July 2014.
$5,000 of wages relating to June 2014 have not been paid and need to be accrued.
Part A (12 Marks)
Prepare journal entries for the necessary end of period adjustments.
Account name

Debit
$

Depreciation Expense PPE


Accumulated Depreciation PPE
(1 mark for each entry)

45 000

Rent Expense
Prepaid Rent
(1 mark for each entry)

5 000

Bad Debts Expense


Allowance for doubtful debts
(1 mark for each entry)

3 000

Retained Profits
Dividend Payable
(1 mark for each entry)

5 000

Sales revenue
Unearned revenue
(1 mark for each entry)

10,000

Wages Expense
Wages Payable
(1 mark for each entry)

5,000

Credit
$

45 000

5 000

3 000

5 000

10,000

5,000

10

ACCT1501 Practice Exam Questions & Solutions

2015S1

Part B (7 Marks)
Prepare an Income Statement for the year ended 30 June 2014:
Sydney Company
Income Statement for year ended 30 June 2014
$
440 000
265 000
175 000

Sales revenue
(1 mark)
Less: COGS ( 1 mark if COGS is in correct place)
Gross Profit
Less other expenses
Interest expense
Depreciation expense
Rent expense
Bad debts expense
Wages expense

(1 mark)
(1 mark)
(1 mark)
(1 mark)
(1 mark)

5 000
45 000
10 000
3 000
85 000

Net Profit

148 000
27 000

Part C (4 Marks)
In the Balance Sheet as at 30 June 2014, what would be the closing balance of
retained profits? Show all workings.
$
34 000 (1 mark)
27 000 (1 mark)
5 000 (1 mark)
56 000 (1 mark)

Opening Balance
Plus Net Profit for Period
Less Dividends declared
Closing Balance

(1 mark for each item & correct figure )

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ACCT1501 Practice Exam Questions & Solutions

2015S1

QUESTION 6 (15 marks) Inventory


The following information relates to inventory transactions of Promises Ltd for the
month ending 30 June 2014:
Date
1 June
10 June
18 June
25 June
30 June

Cash Purchases

Cash Sales

Balance
100 units @ $10

80 units @ $12
140 units @ $20
30 units @ $14
50 units @ $25

Promises Ltd uses FIFO (first-in-first-out) and perpetual inventory control.


Calculate the cost of goods sold based on the costs of units sold. (3 Marks)
18 June Sale of 140 units
- 100 units at $10 and 40 units at $12 = $1,480
30 June Sale of 50 units
- 40 units at $12 and 10 units at $14 = $620
Total cost of sales = $1480 + $620 = $2,100

Check for closing inventory (not required for solution)


- 20 units at $14 = $280
Opening $1,000 + Purchases $960 + $420 GOGS $2,100 = $280

Prepare the journal entries for inventory purchases and cost of sales for the month of
June 2014. (12 Marks)
Date

Account name

10 June

Inventory
Cash
(80 x $12 = $960)

960

Cost of sales
Inventory
[(100 x $10) + (40 x
$12) = $1,480]

1,480

18 June

Debit
$

Credit
$
960

12

1,480

ACCT1501 Practice Exam Questions & Solutions

25 June

30 June

Inventory
Cash
(30 x $14 = $420)

2015S1

420
420

Cost of sales
620
Inventory
[(40 x $12) + (10 x $14)
= $620]

620

3 MARKS FOR THE CALCULATION


4 MARKS: 2 MARKS EACH FOR INVENTORY PURCHASE JOURNALS
4 MARKS FOR COST OF SALES ENTRY 18 JUNE
4 MARKS FOR COST OF SALES ENTRY 30 JUNE

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ACCT1501 Practice Exam Questions & Solutions

2015S1

QUESTION 7 (10Marks) Noncurrent assets


On 1 July 2011, Promises Ltd purchased equipment at a cost of $150,000. The
equipment is depreciated using the reducing balance method at the rate of 40% per
annum.
Prepare the journal entries for depreciation for each year 30 June 2012, 30 June 2013
and 30 June 2014. (9 Marks)
Date

Account name

Debit
$

30 June 2012

Depreciation expense
Accumulated depreciation
($150,000 x 40% = $60,000)

60,000

Depreciation expense
Accumulated depreciation
($90,000 x 40% = $36,000)

36,000

Depreciation expense
Accumulated depreciation
($54,000 x 40% = $21,600)

21,600

Credit
$
60,000

30 June 2013
36,000

30 June 2014
21,600

What is the book value of the equipment at 30 June 2014? (1 Mark)


Book value at 30 June 2014 = Cost Accumulated depreciation
Cost = 150,000
Accumulated depreciation = 60,000 + 36,000 + 21,600 = 117,600
Book value = 150,000 117,600 = $32,400

3 MARKS EACH FOR EACH JOURNAL (NO HALF MARKS)


1 MARK FOR BOOK VALUE (ALLOWANCE FOR CARRYFORWARD
ERRORS)

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ACCT1501 Practice Exam Questions & Solutions

2015S1

Question 8 Management Accounting and Cost Concepts (13.5 marks)


Part A (2 marks)
For each of the items 1-4 in the table below, indicate whether the item is a product
cost or a period cost
Item

Cost Classification

1. A food retailer purchases milk for resale

Product

2. Depreciation of head office computers

Period

3. Salaries of production line workers for a

Product

manufacturer
4. Advertising costs to promote a manufacturers

Period

products

mark each entry


Part B (9.5 marks)
Bandcamp Ltd manufactures guitars. In the month of January 2014, Bandcamp
Ltd recorded:

direct labour cost of $200 000


raw materials purchased of $400 000
total overhead cost of $500 000.

The following information was supplied by Bandcamp Ltds accountant about the
opening and closing inventory:
31 January
1 January
(ending)

(beginning)

Raw materials inventory

$80 000

$95 000

Work in progress inventory

$110 000

$60 000

Finished goods inventory

$255 000

$75 000

Required:

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ACCT1501 Practice Exam Questions & Solutions

2015S1

1. Prepare a cost of goods manufactured statement for January 2014.


Bandcamp Ltd
Statement of Cost of Goods Manufactured
For the Month Ended 31 January 2014
Direct materials:
Beginning raw materials inventory
Add: Purchases
Materials available
Less: Ending raw materials inventory
Direct materials used
Direct labour
Manufacturing overhead
Manufacturing costs added
Add: Beginning work in process
Total manufacturing costs
Less: Ending work in process
Cost of goods manufactured

$
95 000
400 000
495 000
80 000

415 000
200 000
500 000
1 115 000
60 000
1 175 000
110 000
1 065 000
mark each entry
mark for heading

2. Prepare a cost of goods sold statement for January 2014.


Bandcamp Ltd
Cost of Goods Sold Statement
For the Month Ended 31 January 2014
Beginning finished goods inventory
Add: Cost of goods manufactured
Goods available for sale
Less: Ending finished goods inventory
Cost of goods sold

mark each entry


mark for heading

16

$
75 000
1 065 000
1 140 000
255 000
885 000

ACCT1501 Practice Exam Questions & Solutions

2015S1

Part C (2 marks)
Tree & Woods Corp., an international furniture company, manufactures and sells
furniture of unique natural material. In 2010, the company sold all 25,000 chairs that
it produced at $200 each. Total costs amounted to $3,300,000 comprised of
$1,300,000 variable costs and $2,000,000 fixed costs. In 2011, the company purchases
a new saw mill for $110,000. The useful life is estimated to be 5 years with a salvage
value of $10,000. Each year, the same amount of depreciation expense is recorded.
The usage of the new saw mill allows Tree & Woods to reduce variable costs for
producing one chair by $7. All other costs remain the same as in 2010.
What was Tree & Woods Corp.s break-even point in number of units in 2010?

Production and sale of 25,000 units => UVC = $52 (1,300,000 / 25,000)
BEP = FC/(Price UVC) = 2,000,000/(200-52) = 13,513.51 => 13,514 units
UVC 1 mark, correct result 1 mark
[Note: allow 0.5 marks if wrong figures but correct formula written down
somewhere]

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ACCT1501 Practice Exam Questions & Solutions

Question 9 - MCQ practice questions


You have seen samples of MCQ in the lectures and in your quiz attempts.

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2015S1